On Thursday, the Canadian dollar CADUSD fell to a 10-day low against its broadly stronger US counterpart, as equity markets fell ahead of key data and despite the Bank of Canada leaving the door open to a three-quarter-point interest rate hike.
The Canadian dollar was trading 1.1 percent lower against the greenback, or 78.77 US cents, after reaching a low of 1.2698 on May 30. It was the currency’s worst drop since August of last year.
As investors braced for a U.S. inflation report on Friday that could help determine the pace of Federal Reserve interest rate hikes, Wall Street’s main indexes fell and the US dollar rose against a basket of major currencies.
“There is risk that sentiment sours a bit, which is not constructive for the Canadian dollar,” said Mazen Issa, a senior FX strategist at TD Securities.
“U.S. CPI could be the catalyst because it is well understood that the year-over-year measure could peak but what is more important is the monthly price gains.”
Tiff Macklem, Governor of the Bank of Canada, stated that inflation would determine how quickly Canadian interest rates rise, and that the bank may need to make more increases in a row or consider a move larger than 50 basis points.
Money markets expect the Fed to raise interest rates by 75 basis points rather than 50 basis points at its July 13 policy announcement.
Oil prices fell from three-month highs after parts of Shanghai imposed new COVID-19 lockdown measures, a major driver of inflation and one of Canada’s major exports.
Crude oil prices in the United States fell 0.5 percent to $121.51 per barrel, while Canadian government bond yields fell across the curve.
The 10-year yield fell 3.2 basis points to 3.240 percent after reaching a high of 3.310 percent in April 2011.