The Canadian dollar weakens by 0.9% against the greenback
Investors raise their bets on the 50bp hike in October
The 2-year yield exceeds 4% for the first time in 15 years
TORONTO, Oct. 6 (Reuters) – The Canadian dollar weakened against its US counterpart on Thursday as the greenback posted large gains and despite a signal from Bank of Canada Governor Tiff Macklem that the central bank would continue to raise interest rates aggressively.
The loonie fell 0.9% to 1.3740 against the greenback, or 72.78 US cents, returning ahead of last Friday’s two-year low of 1.3838.
“It was mainly a large move by the dollar (US),” said Bipan Rai, head of FX strategy for North America at CIBC Capital Markets.
“You’ve read Macklem’s speech and it’s pretty aggressive. … In particular, it pointed to the recent weakness of the Canadian dollar and tied it a little more than I thought to upcoming political decisions.”
The loonie has weakened 8% against the US dollar since early 2022. This is a better performance than other G10 currencies except the Swiss franc, although most of that decline has come since mid-August.
Macklem said the currency’s recent weakness will offset some easing of inflationary pressures that could result from improving global supply chains and lower commodity prices and made it clear that the central bank will not yet be moving away from the current rapid. pace of interest rate increases.
Money markets raised bets on a 50 basis point hike at the BoC’s next policy announcement on Oct. 26, estimating a 70% probability of such a move versus about 50% prior to the governor’s speech.
The US dollar rose against a basket of major currencies and the major Wall Street indices fell as optimism faded that the Federal Reserve will go slow with its rapid tightening.
Canadian government bond yields increased along a more deeply inverted curve, with the two-year period exceeding the 4% threshold for the first time since October 2007. It was up 14.7 basis points to 4.013%. (Reported by Fergal Smith; Edited by Paul Simao and Jonathan Oatis)