Canadian dollar pares decline as hot inflation bolsters rate hike bets

The Canadian dollar CADUSD weakened against its US counterpart on Wednesday as investor sentiment soured, but the currency’s decline was capped as hot domestic inflation data led to raised bets on another jumbo interest rate hike by the Bank of Canada.

Canada’s annual inflation rate inched down to 6.9 per cent in September, Statistics Canada data showed.

That was the third consecutive monthly deceleration but a notch ahead of analyst forecasts of 6.8 per cent, while measures of underlying price pressures failed to ease.

Money markets see a 66 per cent chance that the Bank of Canada would raise interest rates by three-quarters of a percentage point at its next policy decision on Oct. 26, up from about 30 per cent before the data.

UK inflation was also hot, which pressured global financial markets and helped drive gains for the safe-haven US dollar against a basket of major currencies.

The Canadian dollar was down 0.2 per cent at 1.3770 to the greenback, or 72.62 US cents, after trading in a range of 1.3719 to 1.3800.

Meanwhile, US crude oil prices were up 0.7 per cent at $83.37 a barrel as bullish signals like falling US crude stocks were countered by bearish factors such as uncertain Chinese demand growth. Oil is one of Canada’s major exports.

Canadian government bond yields were higher across the curve, tracking the move in US Treasuries. The 10-year rose 11.8 basis points to 3.474 per cent, approaching the top of its range since June.


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