The Canadian dollar CADUSD weakened to its lowest level in nearly seven weeks against its U.S. counterpart on Tuesday as Wall Street tumbled and domestic inflation data supported the Bank of Canada’s move to signal a pause in its tightening campaign.
Canada’s annual inflation rate eased more than expected in January to 5.9%, which should allow the BoC to keep its benchmark interest rate steady at 4.50% at its next meeting in March while it lets previous rate increases sink in.
The data suggests that “the Bank of Canada has already done enough to bring inflation under control,” Andrew Grantham, a senior economist at CIBC Capital Markets, said in a note.
Money markets expect the central bank will be forced to tighten again by the second half of the year but with less certainty than before the data.
The Canadian dollar was trading 0.6% lower at 1.3535 to the greenback, or 73.88 U.S. cents, after touching its weakest since Jan. 6 at 1.3549.
The decline for the loonie came as U.S. stock indexes fell sharply and the safe-haven U.S. dollar gained ground against a basket of major currencies.
The price of oil, one of Canada’s major exports, settled 0.2% lower at $76.16 a barrel.
Canadian government bond yields were higher across the curve, tracking the move in U.S. Treasuries and German Bunds following stronger-than-expected business activity data in the euro zone.
The 10-year touched its highest level since Nov. 9 at 3.430%, up as much as 13.6 basis points on the day.