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The Canadian dollar CADUSD strengthened to an eight-week high against its U.S. counterpart on Tuesday as investors grew more optimistic that central banks will succeed in lowering inflation without tanking the global economy.

The loonie was trading 0.4 per cent higher at 1.3565 to the greenback, or 73.72 U.S. cents, after touching its strongest since Oct. 2 at 1.3561.

“The market is increasingly in love with the idea of a global (economic) soft landing,” said Adam Button, chief currency analyst at ForexLive, adding that a slowdown in inflation could allow the Federal Reserve to ease monetary policy, improving the growth outlook.

The U.S. dollar sank to a three-month low and U.S. Treasury yields fell as Fed Governor Christopher Waller hinted at the possibility of rate cuts in the months ahead should inflation continue to fall closer to the Fed’s 2 per cent target.

“I wasn’t expecting the Fed to climb down from its hawkish stance so quickly,” Button said.

Last Wednesday, Bank of Canada Governor Tiff Macklem said that Canadian interest rates may be at their peak.

Speculators have reduced their bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission showed on Monday. As of Nov. 21, net short positions had decreased to 65,440 contracts from a six-year high of 70,403 in the prior week.

The price of oil, one of Canada’s major exports, settled 2.1 per cent higher at $76.41 a barrel, while Canadian government bond yields moved lower across the curve, tracking the move in U.S. Treasuries.

The 10-year was down 6 basis points at 3.596 per cent, having earlier touched its lowest level since Sept. 5 at 3.587 per cent.

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