The Canadian dollar CADUSD strengthened to a one-week high against its U.S. counterpart on Tuesday as data showed a slowdown in the pace of U.S. inflation, triggering a sharp drop in long-term borrowing costs and bolstering investor sentiment.
The loonie was trading 0.7% higher at 1.3701 to the greenback, or 72.99 U.S. cents, its strongest level since Nov. 7.
“The Canadian dollar has reset sharply higher on improvements in rate differentials, borrowing costs and overall risk appetite,” said Karl Schamotta, chief market strategist at Corpay.
U.S. stock indexes rallied against a basket of major currencies as underlying U.S. inflation rose in October by the smallest annual amount in two years. The data boosted expectations that the Federal Reserve was done raising interest rates and could start cutting them in 2024.
The U.S. dollar fell sharply against a basket of major currencies, while the price of oil, one of Canada’s major exports, was unable to sustain its earlier gains, settling unchanged at $78.26 a barrel.
Canadian government bond yields fell sharply across the curve, tracking moves in U.S. Treasuries.
The 10-year yield was down 15.8 basis points at 3.682%, having touched its lowest intraday level since mid-September at 3.663%. The gap between it and the U.S. equivalent narrowed by 2.3 basis points to 76.9 basis points in favor of the U.S. note.