The Canadian dollar CADUSD weakened to its lowest level in over two weeks against its U.S. counterpart on Monday as investors worried the Federal Reserve will turn more hawkish and despite data upbeat domestic economic data.
The loonie was trading 0.4 per cent lower at 1.3445 to the greenback, or 74.38 U.S. cents, after touching its weakest since Jan. 20 at 1.3475.
“Both king (U.S.) dollar and the bond market selloff are back as the next round of Fedspeak will likely be hawkish,” Edward Moya, senior market analyst at OANDA in New York, said in a note. “The (U.S.) labor market is too strong and with inflation still nowhere near target.”
Equity markets globally fell and the safe-haven U.S. dollar gained ground against a basket of major currencies after Friday’s blockbuster U.S. jobs report ran counter to hopes that the Fed will soon pause its aggressive tightening campaign and then shift to cutting rates later this year.
The Bank of Canada has already signaled a pause. It will cut rates by a half a percentage point to 4 per cent by December, according to a median of market participants surveyed by the central bank.
Canadian economic activity expanded in January at the sharpest pace in eight months as employment climbed and supplier deliveries speeded up, Ivey Purchasing Managers Index (PMI) data showed.
The price of oil, one of Canada’s major exports, settled nearly 1 per cent higher at $74.11 a barrel on optimism of increased demand from China.
China’s rapid reopening is likely to fuel demand for commodities produced in abundance by Canada, potentially helping Canada’s economy avoid a recession.
The Canadian 10-year yield touched its highest level since Jan. 11 at 3.058% before dipping to 3.040%, up 11.1 basis points on the day.