The Canadian dollar CADUSD weakened against its U.S. counterpart on Tuesday as the greenback posted broad-based gains and cooler-than-expected inflation data supported bets for additional interest rate cuts by the Bank of Canada this year.
The loonie was trading 0.7 per cent lower at 1.3975 per U.S. dollar, or 71.56 U.S. cents, extending its pullback from a five-month high at 1.3827 during Monday’s session.
Canada’s annual inflation rate slowed in March to 2.3 per cent from 2.6 per cent in February, largely due to lower gasoline and travel prices. Analysts had expected inflation to remain at 2.6 per cent.
“Even if it is not enough to drive a rate cut in April, it does speak to inflation momentum that’s fading,” said Andrew Kelvin, head of Canadian and global rates strategy at TD Securities.
“Once we start to see the negative data really pile up due to trade disruptions, I do think the Bank of Canada will begin to reduce interest rates again.”
Investors saw a 57 per cent chance that the BoC pauses its interest rate-cutting campaign on Wednesday but expected the central bank to resume easing in June and were pricing in two additional cuts in total by the end of 2025.
The BoC’s benchmark interest rate is currently at 2.75 per cent.
Separate data showed that Canadian home sales and house prices declined in March as U.S. tarrifs and countermeasures threatened to upend the domestic economy.
Canada will allow some relief to domestically based automakers and manufacturers in specific sectors from counter-tariffs provided they meet certain conditions, the Finance Ministry said.
The U.S. dollar clawed back some recent declines against a basket of major currencies and the price of oil , one of Canada’s major exports, was trading 0.4 per cent lower at $61.30 a barrel.
Canadian bond yields fell across much of a steeper curve. The two-year was down four basis points at 2.539 per cent, after earlier touching its lowest level since Wednesday at 2.532 per cent.