The Canadian dollar CADUSD was little changed against its U.S. counterpart on Wednesday as investors kept their eye on developments overseas even as domestic data showed underlying inflation pressures picking up.
The loonie was trading nearly unchanged at 1.3610 to the greenback, or 73.48 U.S. cents, after moving in a range of 1.3590 to 1.3637.
“The focus here isn’t really on domestic factors for the CAD, it’s more on global forces,” said Mazen Issa, a senior FX strategist at TD Securities.
Such forces include moves by China to reopen its economy as well as hawkish shifts by the European Central Bank and the Bank of Japan, Issa said.
On Tuesday, the BOJ tweaked its policy of yield curve control in a surprise move that triggered a surge in the yen.
Canada’s annual inflation rate eased to 6.8 per cent in November as gasoline price rose more slowly, but an uptick in prices after excluding food and energy left the door open for another interest rate increase by the Bank of Canada next month.
Money markets see a 47% chance of a 25 basis point tightening at the BoC’s policy decision on Jan. 25, up from 42% before the data.
The price of oil, one of Canada’s major exports, settled 2.7% higher at $78.29 a barrel after data suggested a larger-than-expected draw in U.S. crude stockpiles.
Canadian government bond yields edged higher across the curve. The 2-year was up 2.3 basis points at 3.735%, moving 7.4 basis points less below the yield on the equivalent U.S. bond to a gap of 48 basis points.