Story
Canadian Dollar Hits 12-Day Low as Fed Hike Bets Overshadow Oil Surge
Summary
The Canadian dollar weakened against its U.S. counterpart, as the powerful tailwind from surging oil prices was insufficient to offset a broadly stronger greenback fueled by expectations of an imminent Federal Reserve interest rate hike.
The Canadian dollar fell to a near 12-day low against the U.S. dollar on Monday, as the greenback's strength on rising rate-hike expectations overshadowed support from a significant rally in crude oil prices. Steady domestic inflation data provided little impetus for the loonie, leaving it vulnerable to U.S. monetary policy sentiment.
Market Action
The USD/CAD pair traded around C$1.392, leaving the Canadian dollar approximately 0.3% weaker on the day. The currency touched its weakest point since September 2, hitting a session low of C$1.3929.
The move was primarily driven by a robust U.S. dollar, with the U.S. Dollar Index (DXY) climbing nearly 0.4% as investors positioned for a more hawkish Federal Reserve. Markets are now pricing in a roughly 90% probability of a Fed rate increase this week, according to Investing.com.
Conflicting Economic Signals
Surging oil prices, typically a major support for the currency of the major crude exporter, failed to lift the loonie. Brent crude futures jumped above $108 a barrel amid supply concerns in the Middle East. However, this rally is also fueling global inflation fears, which in turn reinforces the case for tighter U.S. monetary policy and a stronger dollar.
AdMeanwhile, domestic economic data offered little reason for the Bank of Canada to alter its course. Canada’s Consumer Price Index (CPI) for August met expectations, showing:
- Annual inflation held steady at 3.0%, unchanged from July.
- Prices fell 0.1% on a monthly basis.
- The Bank of Canada's core measures remained contained, with the median at 2.0% and the trimmed-mean at 1.9%.
Context and Outlook
The inflation figures, while still above the central bank's 2% target, did not show the broad acceleration that might prompt a more aggressive policy response from the Bank of Canada. This leaves the Canadian dollar's trajectory largely dependent on external factors, particularly the Federal Reserve's upcoming interest rate decision and forward guidance.
Read next
More on Forex
Canadian Dollar Slips to One-Month Low as Hawkish Fed Fuels U.S. Dollar
The Canadian dollar weakened to its lowest level in a month against the U.S. dollar after the Federal Reserve raised interest rates and indicated another hike is likely this year, widening the policy divergence with the Bank of Canada.
UBS Forecasts EUR/CHF to Retest 0.96 as Swiss Franc Lags on Low Yield
Analysts at UBS project the euro could strengthen to 0.96 against the Swiss franc, citing the franc's low yield and the Swiss National Bank's expected dovish stance compared to other G10 central banks.
Pound Sterling Rally May Fade on UK Fiscal Concerns, Citi Says
Analysts at Citi suggest any near-term strength in the British pound following the Bank of England's meeting is unlikely to last, citing significant fiscal risks associated with the upcoming October budget.
Pound Sterling Declines as Fed Rate Hike Looms and UK Inflation Data Tempers BoE Bets
The British pound fell against the U.S. dollar on Wednesday as markets braced for an almost certain Federal Reserve interest rate increase. Domestically, a rise in UK headline inflation failed to sway expectations for a more aggressive Bank of England, adding to the currency's weakness.