The Canadian dollar weakened against its U.S. counterpart on Wednesday, pulling back from an earlier one-week high, after the release of U.S. inflation data that prompted some investors to bet that the Federal Reserve could raise interest rates further.
The U.S. dollar rose against a basket of major currencies, reverse the prior day’s decline, after a measure of inflation excluding energy prices rose.
“We are seeing a little bit of dollar strength here,” said Erik Nelson, a currency strategist at Wells Fargo. “We had some solid CPI numbers this morning, and maybe some very slight increase in speculation that the Fed is not done here.”
Higher U.S. interest rates could reduce the attractiveness of buying lower-yielding Canadian bonds.
The gap between Canada’s two-year yield and its U.S. equivalent widened by 1.6 basis points to a spread of 72 basis points in favour of the U.S. bond.
At 4:38 p.m. (2138 GMT), the Canadian dollar was trading 0.2 per cent lower at 1.3256 to the greenback, or 75.44 U.S. cents. The currency touched its strongest level intraday since Feb. 6 at 1.3197.
The one-week high for the loonie came as U.S. stocks were boosted by hopes the United States and China can iron out a trade deal.
A U.S.-China deal could boost prospects for Canada’s economy as a major producer of commodities, including oil.
U.S. crude oil futures settled 1.5 per cent higher at $53.90 a barrel on Wednesday, as Saudi Arabia said it would cut crude exports and deliver an even deeper cut to its production.
Canadian home prices fell 0.1 per cent in January, the fourth consecutive month of decline, led by weakness in major Western Canadian cities, the Teranet-National Bank Composite House Price Index showed.
Canadian government bond prices were lower across the yield curve in sympathy with Treasuries. The two-year fell 3.7 Canadian cents to yield 1.818 per cent and the 10-year declined 14 Canadian cents to yield 1.935 per cent.