The Canadian dollar weakened to a nine-day low against its U.S. counterpart on Friday as U.S. inflation data supported bets for a Federal Reserve interest rate hike next week.
The loonie was trading 0.2% lower at 1.3862 per U.S. dollar, or 72.14 U.S. cents, after touching its weakest intraday level since September 2 at 1.3883. For the week, the currency was down 0.2%.
“I think the weakness stemmed from rising expectations for Fed rate hikes,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.
U.S. consumer prices accelerated in August, while a key measure of underlying inflation posted its largest increase in four months, reinforcing expectations that the Fed will raise interest rates next week.
The loonie benefited last week from a more hawkish message from the Bank of Canada, Bregar said, adding that “this week it has really been about the U.S. dollar rallying with yields and oil.”Soaring oil prices have raised the outlook for inflation globally, leading to a steep sell-off in bonds.
Bank of Canada Governor Tiff Macklem last week said that policymakers were prepared to raise borrowing costs multiple times if inflation remained too high.
Investors see a 57% chance the Canadian central bank will tighten policy at its next policy decision on October 28, swap market data showed.
An escalating trade war between the United States and Canada has also weighed this week on the Canadian currency. Canada sends about 70% of its exports to the U.S., including oil.
U.S. crude oil futures were trading 2.3% lower at $100.11 a barrel on Friday but remained on course for a sharp weekly gain.
Canadian bond yields were mixed across a flatter curve. The 2-year was up 1.3 basis points at 3.343% but was trading 5.3 basis points further below the U.S. equivalent at a gap of about 127 basis points.