Canadian dollar notches six-day high as underlying inflation heats up

The Canadian dollar CADUSD edged higher against its U.S. counterpart on Wednesday as data showed the Bank of Canada’s preferred measures of underlying inflation rising in December, supporting bets for an interest rate hike from the central bank next week.

Canada’s annual inflation rate climbed to a 30-year high of 4.8% in December, led by higher prices for food, vehicles and shelter, while the average of the Bank of Canada’s three core measures increased to 2.9% from 2.7%.

“The increase in the core metrics does catch my eye,” said Andrew Kelvin, chief Canada strategist at TD Securities. “This probably does incrementally ratchet up pressure on the BoC to start lifting rates sooner rather than later.”

Despite the prospect of slower economic growth due to the spreading Omicron COVID-19 variant, money markets see about a 70% chance that Canada’s central bank will hike next week for the first time since October 2018.

The Canadian dollar was trading 0.2% higher at 1.2488 to the greenback, or 80.08 U.S. cents, after touching its strongest intraday level since last Thursday at 1.2451.

Separate data showed Canadian wholesale trade rising 3.5% in November from October, while the price of oil, one of Canada’s major exports, rose for a fourth day after a fire on a pipeline from Iraq to Turkey briefly stopped flows.

U.S. crude prices were up 1.4% at $86.58 a barrel.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year fell 1.8 basis points to 1.872%, after earlier touching its highest level since March 2019 at 1.905%.

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