Canadian dollar holds near four-week high as investors stick to rate hike bets

The Canadian dollar held near a four-week high as investors maintained bets that the Bank of Canada will raise interest rates. The move reflects a rate differential channel, where expectations of tighter Canadian monetary policy relative to peers support demand for the currency through higher expected yields and carry. Canadian government bonds and short-dated interest rate futures are most directly exposed, since repricing of rate-hike expectations feeds straight into their yields, while the loonie itself is sensitive to shifts in those expectations versus the U.S. Federal Reserve. Traders will be watching the next Canadian inflation release and the Bank of Canada's upcoming policy communications for signals on whether the hike path is confirmed or priced out.

The Canadian Dollar (CAD) is tightly correlated with oil prices. BoC rate decisions, Canadian CPI, WTI inventory reports, and OPEC+ decisions all move USD/CAD intraday. Winter fuel demand amplifies oil-CAD correlation Q4/Q1.

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