The Canadian dollar CADUSD strengthened to a two-week high against its U.S. counterpart on Wednesday, as the Bank of Canada raised interest rates further and data showed U.S. inflation cooling to its slowest pace in more than two years.
The loonie was trading 0.3 per cent higher at 1.3185 to the greenback, or 75.84 U.S. cents, after touching its strongest intraday level since June 27 at 1.3144.
“The Bank of Canada’s 25 basis-point rate hike provided a boost to the loonie as the move wasn’t fully priced into the market,” said Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets.
“The broader U.S. dollar weakness after the soft U.S. CPI report gave the Canadian dollar an extra lift.”
The BoC hiked its benchmark interest rate by a quarter of a percentage point to a 22-year high of 5.0 per cent, and said it could raise rates further because of the risk that inflation stalls above its 2 per cent target.
The U.S. dollar fell against a basket of major currencies and the price of oil, one of Canada’s major exports, rose after the U.S. inflation data boosted hopes that the Federal Reserve was nearing the end of its monetary tightening cycle.
U.S. crude oil futures were up 1.2 per cent at $75.74 a barrel.
Canadian bond yields fell across the curve, tracking moves in U.S. Treasuries.
The 2-year was down 13.7 basis points at 4.668 per cent, while the gap between it and the U.S. equivalent narrowed by 1.5 basis points to 7.6 basis points in favor of the U.S. note.