The Canadian dollar weakened to its lowest level in nearly two weeks against the U.S. dollar on Thursday, as a sharp rise in U.S. wholesale prices dampened expectations for interest rate cuts by the Federal Reserve.
The loonie fell 0.4% to 1.3812 per U.S. dollar, or 72.40 U.S. cents, after reaching an intraday low of 1.3819—the weakest since August 1.
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U.S. producer prices in July rose at their fastest pace in three years, driven by surging costs of goods and services. The unexpected jump in inflation has led investors to dismiss the possibility of a larger half-percentage-point rate cut at the Fed’s upcoming meeting on September 16–17.
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“The upside US PPI data surprise this morning led to a broad-based USD rally, including USD-CAD,” said Howard Du, FX strategist at BofA Securities. “For now, the combination of strong U.S. inflation data and weak Canadian labor force data is causing the pair to trade slightly above our Q3 forecast.”
Du forecasts the USD-CAD pair to remain at 1.38 through the third quarter, before the loonie strengthens to 1.36 in Q4.
Canadian labor market data released Friday showed a loss of 40,800 jobs in July, reversing part of the strong gains from the previous month.
Meanwhile, oil prices—an important export for Canada—rose 2.1% to $63.96 a barrel ahead of a key meeting between U.S. President Donald Trump and Russian President Vladimir Putin on Ukraine.
Canadian bond yields moved slightly higher in tandem with rising U.S. yields, with the 10-year yield up one basis point to 3.415%.
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