Canadian dollar rebounds from two-week low ahead of Fed decision

• The bar for a Fed interest rate hike on Wednesday is likely higher than reflected in rate futures markets, not only due to cooler-than-expected inflation data and another lull in hostilities between the U.S. and Iran but also because markets will view a single increase as signaling more moves are coming.
• "A Fed hold tomorrow may allow the CAD to improve a little but scope for improvement is limited absent a significant narrowing in rate differentials - which we do not expect to develop until later this year," Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.
• Also on Wednesday, the Bank of Canada is due to release minutes from its most recent policy decision. The central bank left its benchmark interest rate unchanged at 2.25% earlier this month and said growth would strengthen in the second half of the year as inflation pressures eased.
• Canadian GDP data for May, due on Friday, could offer additional clues on the state of the domestic economy. Analysts expect a monthly increase of 0.2%.
• The price of oil, one of Canada's major exports, was trading 4.2% lower at $79.18 a barrel on cautious hopes for a resolution to the U.S.-Iran conflict, easing worries about the inflation outlook.
• Canadian bond yields moved lower across the curve, tracking moves in U.S. Treasuries. The 10-year was down 2.9 basis points at 3.528%, after earlier touching its lowest level since July 17 at 3.518%.

The Canadian dollar strengthened against its U.S. counterpart on Tuesday, but the move was limited as oil prices fell and investors awaited an interest rate decision this week by the Federal Reserve.

The loonie was trading 0.2% higher at 1.41 per U.S. dollar, or 70.92 U.S. cents, after earlier touching its weakest level since July 14 at 1.4128.