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Canadian Dollar Edges Higher as Traders Await Federal Reserve Rate Decision
The Canadian dollar posted a modest gain against the U.S. dollar on Tuesday, though the advance was limited by a sharp decline in crude oil prices. Currency traders remained cautious ahead of a key interest rate decision from the U.S. Federal Reserve expected later this week.
By the close of trading, the loonie was 0.2% higher at 1.41 per U.S. dollar, or 70.92 U.S. cents, according to Investing.com. The currency had earlier touched 1.4128, its weakest level since July 14.
Fed Policy Announcement in Focus
The primary driver for currency markets is the Federal Reserve's upcoming policy announcement on Wednesday. While rate futures markets have priced in a high probability of an interest rate increase, some analysts cited by Investing.com suggest these expectations may be overstated.
They point to recent data showing cooler inflation and an easing of geopolitical tensions as factors that could give the U.S. central bank reason to hold rates steady. A single rate hike would likely be interpreted by markets as a signal that additional tightening moves will follow.
AdOil Headwinds and Domestic Data
Weighing on the commodity-linked Canadian dollar was a significant drop in crude oil prices, a key Canadian export. Oil futures fell 4.2% to $79.18 a barrel amid cautious optimism about a potential resolution to the U.S.-Iran conflict.
Investors are also looking ahead to a busy domestic economic calendar. The Bank of Canada, which held its benchmark interest rate at 2.25% at its last meeting, is set to release the minutes from that session on Wednesday. On Friday, May's Gross Domestic Product (GDP) data is due, with analysts forecasting a monthly increase of 0.2%.
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The Canadian dollar edged lower against its U.S. counterpart, snapping a seven-day winning streak as investors adopted a cautious stance ahead of Wednesday's key interest rate announcements from both the Bank of Canada and the U.S. Federal Reserve.