CANADA FX DEBT – Canadian dollar retreats from 2-month high after Fed pauses

The Canadian dollar was little changed against its US counterpart on Wednesday, retreating from a two-month high as oil prices fell and investors considered the Federal Reserve’s decision to pause interest rate hikes.

The Canadian dollar traded almost unchanged at 1.3315 per US dollar, or 75.10 US cents, after touching the strongest intraday level since February 2 at 1.3269.

The Fed kept interest rates unchanged as expected, but indicated in the New Economic Outlook that borrowing costs are likely to rise another half a percentage point by the end of this year.

“Policy makers are indicating that this will only be a short delay,” Royce Mendez, head of macro strategy at Desjardins, said in a note. “It is clear that the economy has proven to be more resilient than Fed officials previously expected.”

Further tightening by the Federal Reserve could dampen economic growth. Canada sends 75% of its exports to the United States, including oil, which fell 1.7% to $68.27 a barrel.

The Bank of Canada last week raised its benchmark interest rate for the first time since January in an effort to slow the domestic economy enough to bring inflation back to its 2% target.

Data on Wednesday showed that Canadian household debt to income fell in the first quarter from an upwardly revised 181.0% in the fourth quarter to 180.5%.

Canadian government bond yields fell along a flatter curve. The 10-year notes fell 6.8 basis points at 3.397%, while interest rates were 2.1 basis points lower than the equivalent rate in the United States, a difference of 39.5 basis points. (Reporting by Fergal Smith; Editing by William Maclean)