The Canadian dollar moved lower Wednesday against the U.S. dollar after the Federal Reserve hiked rates by 75 basis points.

The loonie recently traded at 77.01 cents U.S. Wednesday afternoon, down from a peak of about 77.41 cents U.S. earlier in the day. The Canadian currency has fallen by 2.6 per cent since the beginning of the month amid a flight to safety that saw investors plow into the U.S. dollar.

The U.S. dollar spot index recently traded at 105.29, paring its losses in midday trading but still hovering around its highest level since 2002. The greenback has been in significant demand as traders weigh how to trade currencies in an aggressive interest rate hike environment.

“Everyone is piling into the U.S. dollar as fast as they can,” said Adam Button, chief currency analyst at Forexlive, in an interview. “A lot of investors are going to the sidelines”.

He said the fear of runaway inflation, coupled with deteriorating global growth and a slowdown in Canada’s housing sector has pushed investors to find a safety in the U.S. dollar. 

Both the Fed and the Bank of Canada have been tightening monetary policy in an attempt to get inflation under control. Despite moving interest rates higher, the latest inflation figures in both the U.S. and Canada have reached multi-decade-highs.

Canadian inflation rose by 6.8 per cent in April to hit a three decade high, while the U.S. consumer price index figure for May came in at 8.6 per cent.

For Button, the Canadian dollar could regain popularity amongst traders once inflation cools.

“The market is just looking for that report where inflation in the month-over-month term starts to slow down. When that comes, you’ll [see] the world needs a lot of what Canada is selling … in terms of commodities,” Button said.

“Longer term, this decade is going to be all about building things in commodities, and that’s going to be a great thing for the Canadian dollar.”