The Canadian dollar CADUSD rose against its U.S. counterpart on Thursday, clawing back a small part of its quarterly decline, as the greenback broadly lost ground after data showed a slowdown in underlying U.S. inflation.
A U.S. Commerce Department report suggested inflation had probably peaked, with the core PCE price index advancing 4.7% on a year-on-year basis in May, the smallest increase since last November.
Separately, the Federal Reserve Bank of Atlanta’s running estimate of U.S. GDP growth for the second quarter showed a decline of 1%. The U.S. economy contracted in the first quarter.
The U.S. dollar fell as market players bet that Fed Chair Jerome Powell may have to rethink his hawkish stance, said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.
“With a technical recession on the radar now, maybe he’ll have to dial back a bit,” Bregar said.
The Canadian dollar was trading 0.1% higher at 1.2880 to the greenback, or 77.64 U.S. cents, after trading in a range of 1.2862 to 1.2933.
For the month of June, the loonie fell 1.8%, as recession fears buffeted global financial markets. It was down 3% in the second quarter, its biggest quarterly decline since the start of the coronavirus pandemic in 2020.
Canada’s economy declined 0.2% in May, a preliminary estimate showed. Data for April showed a gain of 0.3%, which matched estimates.
Despite the mixed data, money markets expect the Bank of Canada to hike interest rates by three-quarters of a percentage point in July.
The price of oil, one of Canada’s major exports, settled 3.7% lower at $105.76 a barrel amid recession fears.
Canadian bond yields eased across the curve, tracking the move in U.S. Treasuries. The 10-year touched its lowest since June 10 at 3.206% before recovering to 3.225%, down 8.8 basis points on the day.
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