Canadian dollar hits 12-day low as inflation data match expectations

The Canadian dollar fell to a 12-day low against its US counterpart on Monday, while bond yields rose after domestic inflation data came in line with expectations and the US dollar posted broad gains ahead of the Federal Reserve’s interest rate decision this week.

The Canadian dollar weakened 0.3% to C$1.3915 per US dollar, or 71.86 US cents, after touching its weakest level since September 2 at C$1.3929 during the session.

“The clear driver is US dollar strength, and that has been encouraged by the shift in expectations around Federal Reserve policy,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

The US dollar strengthened broadly as the conflict in the Middle East pushed oil prices higher and investors turned to the safe-haven currency, while also betting that the Federal Reserve will raise interest rates on Wednesday for the first time in more than two years.

“I think the US-Canada trade conflict is also a negative factor,” Chandler said, adding that investors are skeptical that a trade agreement can be reached soon, contrary to what US President Donald Trump suggested on Saturday.

Canadian Prime Minister Mark Carney is hosting dozens of global investors in Toronto this week, hoping to attract investment for more than 160 projects that he says are crucial to steering the Canadian economy through its trade war with the United States.

Canada’s Consumer Price Index rose 3% year-on-year in August, matching both the previous month’s pace and economists’ expectations, but keeping inflation well above the Bank of Canada’s 2% target.

Bank of Canada Governor Tiff Macklem said policymakers are prepared to raise borrowing costs several times if inflation remains too high.

Canadian bond yields rose across a flattening yield curve, with the two-year yield climbing 2.7 basis points to 3.384%, after earlier touching 3.437%, its highest level since August 2024.