Canadian dollar weakens to nine-day low on Fed rate hike bets
FXC•Oil and bond market moves
- U.S. crude oil futures CLc1 were trading 2.3% lower at $100.11 a barrel on Friday but remained on course for a sharp weekly gain.
- Canadian bond yields were mixed across a flatter curve. The 2-year was up 1.3 basis points at 3.343% but was trading 5.3 basis points further below the U.S. equivalent at a gap of about 127 basis points.
Canadian dollar hits nine-day low on Fed rate hike bets
The Canadian dollar weakened to a nine-day low against its U.S. counterpart on Friday as U.S. inflation data supported bets for a Federal Reserve interest rate hike next week.
The loonie was trading 0.2% lower at 1.3862 per U.S. dollar, or 72.14 U.S. cents, after touching its weakest intraday level since September 2 at 1.3883. For the week, the currency was down 0.2%.
Fed expectations, oil and trade tensions pressure the loonie
- "I think the weakness stemmed from rising expectations for Fed rate hikes," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.
- U.S. consumer prices accelerated in August, while a key measure of underlying inflation posted its largest increase in four months, reinforcing expectations that the Fed will raise interest rates next week.
- The loonie benefited last week from a more hawkish message from the Bank of Canada, Bregar said, adding that "this week it has really been about the U.S. dollar rallying with yields and oil."
- Soaring oil prices have raised the outlook for inflation globally, leading to a steep sell-off in bonds.
- Bank of Canada Governor Tiff Macklem last week said that policymakers were prepared to raise borrowing costs multiple times if inflation remained too high.
