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The Canadian dollar CADUSD strengthened against its U.S. counterpart on Tuesday but the move was limited as domestic data showed inflation easing and investors weighed minutes from the latest Federal Reserve meeting.

The loonie was trading 0.2 per cent higher at 1.37 to the greenback, or 72.99 U.S. cents, after moving in a range of 1.3682 to 1.3731.

Canada’s annual inflation rate eased more than expected to 3.1 per cent in October and core inflation measures edged down to their lowest levels in about two years.

“This is yet another confirmatory point for our view that the BoC, having led the Fed during the hiking cycle, will once again be the pace setter in the 2024 easing cycle, with a cut likely as early as April,” said Simon Harvey, Head of FX analysis for Monex Europe and Monex Canada.

“Markets have been slowly aligning with this view in recent weeks, which has seen the Canadian dollar lag the G10 rally amidst the softer (U.S.) dollar environment.”

Money markets have nearly fully discounted a BoC rate cut by April and see three cuts in total next year.

Speculators have raised their bearish bets on the Canadian dollar to the most since June 2017, data from the U.S. Commodity Futures Trading Commission showed on Friday.

The U.S. dollar recouped some recent declines against a basket of major currencies as Fed officials agreed at their Oct. 31-Nov. 1 meeting they could take a cautious approach to raising rates moving forward.

Canadian bond yields were mixed ahead of the release of a mid-year fiscal update that will show widening deficits. The update is due after 4 p.m. EST (2100 GMT).

The 10-year yield rose 2.4 basis points to 3.677 per cent, after earlier touching its lowest level since Sept. 5 at 3.606 per cent.

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