The Canadian dollar was trading not far from two-month lows against its U.S. counterpart on Tuesday as expectations for a Federal Reserve rate hike continued to underpin the greenback and investors digested trade data from both countries.
USD/CAD hit highs of 1.3421 and was at 1.3411 by 09.27 ET, not far from Friday’s two-month high of 1.3435.
Demand for the greenback continued to be underpinned as markets remained confident that the Fed will hike interest rates at its meeting next week.
A rate hike at the Fed’s March 14-15 meeting is seen as a near certainty after Fed Chair Janet Yellen said last week that a rate increase "would likely be appropriate" this month if employment and inflation continued to evolve in line with expectations.
Futures traders are pricing in around an 84% chance of a hike at the meeting, according to Investing.com’s Fed Rate Monitor Tool.
The greenback showed muted reaction to data showing that the U.S. trade deficit jumped to an almost five year high in January as rising oil prices pushed up the cost of imported fuel.
The Commerce Department said the trade gap widened by 9.6% to $48.5 billion in January, the highest level since March 2012, and in line with economists’ forecasts.
December's trade deficit was unrevised at $44.3 billion.
At the same time, official data showed that Canada posted a third consecutive monthly trade surplus in January for the first time in over two years as auto exports rebounded.
Statistics Canada said the trade surplus rose to $807 million compared to analysts' forecasts of a $700 million surplus.
December's surplus was revised down to $447 million from an initial $923 million.