Canadian Dollar Hits Four-Week Low on Strong U.S. Inflation Data

Canadian Dollar

The Canadian dollar experienced a decline to a four-week low against the broadly strengthened U.S. dollar on Thursday, driven by hotter-than-expected U.S. inflation data that raised uncertainties about the potential commencement of Federal Reserve interest rate cuts.

The loonie traded 0.3% lower at 1.3415 to the greenback, equivalent to 74.54 U.S. cents, reaching its lowest intraday level since December 14 at 1.3442.

The impact on the Canadian dollar resulted from the U.S. inflation report, which exceeded expectations and prompted a reevaluation of the market’s outlook regarding the timing of the first rate cut by the Federal Reserve, according to Tony Valente, senior FX dealer at AscendantFX.

The U.S. dollar strengthened against a basket of major currencies on Thursday, extending its gains since the beginning of the year. U.S. consumer prices showed a higher-than-expected increase in December, especially in shelter and healthcare expenses, indicating that it might be premature for the Federal Reserve to initiate interest rate cuts.

Valente noted that the Canadian dollar had experienced significant movements during December, and the news on U.S. inflation caught the market leaning in the wrong direction.

Oil prices, a significant Canadian export, rose by 0.9% to $72.00 a barrel after Iran seized an oil tanker off the coast of Oman, heightening concerns about escalating conflict in the Middle East.

Canadian government bond yields saw an increase across the curve, with the 10-year rising by 2.5 basis points to 3.300%, trading near its highest level since mid-December.

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