The Canadian dollar weakened to a near five-week low against its U.S. counterpart on Tuesday as domestic data showed that inflation accelerated less than expected in April and the greenback posted broad-based gains.
The loonie was trading 0.1% lower at 1.3750 per U.S. dollar, or 72.23 U.S. cents, after touching its weakest intraday level since April 15 at 1.3773.
Canada’s consumer price index increased at an annual rate of 2.8% in April, up from 2.4% in March, driven largely by a surge in gasoline prices after the Iran war pushed global oil prices sharply higher.
Analysts had forecast 3.1% for the headline rate, while measures of underlying price pressures, closely watched by the Bank of Canada, eased.
“Having had nightmares about another round of persistently high inflation, Canadian monetary policymakers can now rest easier,” Royce Mendes, head of macro strategy at Desjardins, said in a note. “While rate cuts are not yet on the table, market-implied pricing for two rate hikes seems misplaced.”
The swap market was pricing in 50 basis points of tightening this year by the Canadian central bank, down from 54 basis points before the data.
The U.S. dollar rose against a basket of major currencies as investors focused on a possible hawkish shift by the Federal Reserve to curb energy-driven inflation, while uncertainty over a potential peace deal in the Middle East also weighed on sentiment.
The price of oil, one of Canada’s major exports, was barely changed at about $108.65 a barrel, holding near the top of its range since the start of May.
Canadian government bond yields were mixed across a steeper curve. The 10-year was up 2 basis points at 3.713%, after earlier touching its highest level since May 2024 at 3.744%.
A U.S.-dollar-denominated global bond was launched by Canada’s government, with pricing to be finalized on Wednesday.