Canadian Dollar Hits Six-Day High Amid Mixed Inflation Data

The Canadian dollar climbed to a six-day high against the U.S. dollar on Monday. This rise came amidst mixed inflation data and a general decline of the greenback against major currencies.

Canadian Dollar Performance

The loonie strengthened by 0.4%, trading at 1.3865 per U.S. dollar, or approximately 72.12 U.S. cents. It reached an intraday peak of 1.3860, its strongest level since the previous Tuesday.

Factors Influencing Currency Movement

• The U.S. dollar weakened as investors sought safe havens.
• Recent tariff threats from U.S. President Donald Trump contributed to market volatility.

Investors appeared cautious, moving towards currencies like the Swiss franc in response to geopolitical tensions, particularly those surrounding tariffs linked to Greenland.

Inflation Data Overview

Domestic inflation data indicated a year-over-year increase of 2.4% in December. This rise was largely influenced by a previous year’s sales tax cut. However, core inflation measures have shown a decline for three months in a row.

Analysts’ Insights

According to Adam Button, chief currency analyst at investingLive, the headline inflation rate holds significant importance currently. The Bank of Canada may consider this data when deciding on interest rates.

Future Expectations

Currently, investors anticipate that the Bank of Canada will maintain its benchmark interest rate at a three-year low of 2.25%. However, there is a growing expectation of a roughly 40% chance for a rate hike by year-end, based on swap market trends.

Business Sentiment and Market Conditions

A recent survey from the central bank revealed that Canadian business sentiment is subdued. Trade tensions with the United States are impacting expectations, with modest sales growth projected for the coming year.

Other Economic Indicators

• The price of oil, a key Canadian export, increased by 0.2%, reaching $59.57 per barrel.
• Mixed performance in Canadian bond yields was noted, with the 2-year yield down by 1.1 basis points at 2.538% and the 10-year yield up by 0.7 basis points at 3.391%.

Overall, the Canadian dollar’s recent performance reflects a complex interplay of domestic inflation trends, international market dynamics, and investor sentiment amidst global uncertainties.