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Canadian dollar falls to nine-day low as US rate-hike bets rise
The Canadian dollar weakened to a nine-day low against its US counterpart on Friday after US inflation data strengthened expectations that the Federal Reserve will raise interest rates next week.
The Canadian dollar fell 0.2% to C$1.3862 per US dollar, or 72.14 US cents, after touching its weakest level since September 2 at C$1.3883 during the session. The currency has declined 0.2% over the week.
“I think the weakness was driven by rising expectations for a US interest rate hike,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull.
US consumer prices accelerated in August, while a key measure of underlying inflation posted its largest increase in four months, strengthening expectations that the Federal Reserve will raise interest rates next week.
Bregar said the Canadian dollar benefited last week from a more hawkish message from the Bank of Canada, adding that “this week, it was really about the US dollar moving higher alongside yields and oil prices.”
Higher oil prices pressure bond markets
Rising oil prices have increased inflation expectations globally, triggering a sharp selloff across bond markets.
Bank of Canada Governor Tiff Macklem said last week that policymakers are prepared to raise borrowing costs several times if inflation remains too high.
Investors see a 57% probability that the Canadian central bank will tighten monetary policy at its next decision on October 28, according to swaps market data.
The escalating trade war between the United States and Canada has also weighed on the Canadian currency this week. Canada sends around 70% of its exports to the United States, including oil.
US crude oil futures were trading 2.3% lower at $100.11 a barrel on Friday, although they remained on track for strong weekly gains.
Canadian bond yields were mixed as the yield curve flattened. The two-year yield rose 1.3 basis points to 3.343%, but remained below its US counterpart, with the spread widening by another 5.3 basis points to around 127 basis points.
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