The Canadian dollar CADUSD weakened to its lowest level in more than two years against its US counterpart on Thursday and bond yields jumped as hotter-than-expected US inflation data bolstered bets for additional tightening by the Federal Reserve.
Stocks globally fell as US consumer prices increased 8.2 per cent in September and underlying inflation pressures continued to build up, reinforcing expectations that the Fed will deliver a fourth 75-basis points interest rate hike next month.
Investors worry that aggressive tightening could tip some major economies into recession. That’s an outcome that could pressure commodity-linked currencies such as the loonie.
The price of oil, one of Canada’s major exports, fell 1 per cent to $86.40 a barrel, while the Canadian dollar was trading 0.6 per cent lower at 1.39, after touching its weakest level since May 2020 at 1.3977.
The Bank of Canada has also been raising interest rates at a rapid pace to subdue inflation. Money markets expect the central bank to hike a further 50 basis points at the next policy announcement on Oct. 26 and to then lift rates to a peak of about 4.30 per cent next year.
Canadian government bond yields were higher across a more deeply inverted yield curve, tracking the move in US Treasuries.
The 2-year touched its highest level since October 2007 at 4,186 per cent before dipping to 4,130 per cent, up 9 basis points on the day, while the 10-year was up 1.8 basis points at 3,442 per cent.
The Bank of Canada is due to conduct a 2-year auction later in the day, with the bidding deadline set for 12 pm ET (1600 GMT).