The Canadian dollar has weakened against the US dollar, retreating from recent highs as domestic inflation eases and terms of trade become less supportive. Market expectations for further interest rate hikes in Canada are diminishing, and concerns about oil supply are weighing on the loonie.
- The Canadian dollar weakened toward 1.367 per US dollar.
- January CPI slowed to 2.3%, and the Bank of Canada’s trimmed mean eased to 2.4%.
- Gasoline prices plunged 16.7% year over year.
- Shelter inflation cooled.
- The Bank of Canada’s policy rate is at 2.25%, and officials signal settings are broadly appropriate.
- Markets are flattening the expected rate path, narrowing Canada’s yield support relative to peers.
- Crude oil faces renewed supply headwinds as OPEC+ considers resuming output increases in April.
- USD/CAD pair climbs to over a one-week high during the Asian session on Tuesday.
- USD/CAD spot prices currently trade just below mid-1.3600s.
The Canadian dollar’s value is currently being influenced by a combination of factors. Cooling inflation is reducing the likelihood of further interest rate hikes, diminishing the currency’s yield advantage. At the same time, concerns about increased oil supply are impacting Canada’s export earnings, further weakening the Canadian dollar. These factors together create a less favorable environment for the currency.