Rising US inflation and economic growth widen gap, pressuring Canadian dollar and bond yields
The Canadian dollar fell to a 4.5-year low against the US dollar on Wednesday as investors assessed US inflation data and the growing economic disparity between the US and Canada, Reuters reports.
In October, US consumer prices rose as anticipated, primarily due to higher shelter costs like rent, with recent progress toward reducing inflation showing signs of slowing.
This inflation data could lead to fewer interest rate cuts from the Federal Reserve next year, boosting the US dollar, which hit a one-year high against a selection of major currencies.
Nick Rees, senior FX market analyst at Monex Europe Ltd., noted, “Despite a modest undershoot for the unrounded headline figures, today's US CPI data was still solid across the details.”
Rees added that this data has redirected market focus to the increasing economic divergence between the US and Canada.
The Bank of Canada projects the Canadian economy to grow by 1.2 percent this year, compared to 2.8 percent in the United States.
US President-elect Donald Trump is expected to either maintain or introduce new tax cuts and reduce business regulations, potentially adding to American growth.
The Canadian dollar traded 0.3 percent lower at 1.3985 to the US dollar, or 71.51 US cents, after reaching its weakest intraday level since May 2020 at 1.3999.
Oil prices, crucial to Canada’s economy, rebounded as investors engaged in short-covering after prices dropped near a two-week low in the previous session.
US crude oil futures ended 0.5 percent higher at $68.43 per barrel. Canadian government bond yields increased across the yield curve. The 10-year yield rose by 5.1 basis points to 3.321 percent, approaching the three-month high of 3.384 percent reached last week.
