Canadian Dollar comes under pressure as US CPI reinforces hawkish Fed outlook
- USD/CAD gains ground as the US Dollar rebounds following October inflation data.
- Traders price in another Fed rate hike in December after US CPI beats forecasts.
- Canada's weak labour market complicates the BoC's December rate decision.
USD/CAD climbs to its highest level since October 16 on Tuesday as stronger-than-expected US inflation lifts the US Dollar (USD), while falling Oil prices amid hopes for US-Iran diplomacy add further pressure on the Canadian Dollar (CAD). At the time of writing, the pair trades around 1.4167, up 0.34% on the day.
The US Consumer Price Index (CPI) rose 0.4% MoM in October, above the 0.3% forecast but down from 0.6% in September. Core CPI, which excludes food and energy, increased 0.3%, the same as in September and above the 0.2% expected. The Bureau of Labor Statistics (BLS) did not publish annual CPI figures for October because of last year’s government shutdown.
The data reinforced expectations that the Federal Reserve (Fed) will raise rates in December, helping the US Dollar recover about half of the previous day’s losses. The US Dollar Index (DXY) climbs toward 102.00 from an intraday low of 101.49.
Before the release, Fed Governor Christopher Waller said a half-point Fed rate hike may be needed in December if October core CPI comes in “around 0.3% or higher.” Traders now assign an 85.3% chance to a 25-basis-point hike and a 14.7% chance to a 50-basis-point hike, according to the CME FedWatch Tool.
Analysts at MUFG/BTMU suggest that geopolitical developments could play a pivotal role in the policy outlook, arguing that “if there is further progress towards a US-Iran deal to end the conflict, it would help to sustain lower energy prices and ease pressure on major central banks, including the Fed, to keep hiking rates.”
West Texas Intermediate (WTI) slips toward $84 a barrel, its lowest level since August 31, and is down more than 15% so far this month. US President Donald Trump said there was “positive momentum” toward ending the war with Iran after talks with Qatar’s prime minister at the White House on Monday.
Canada is a major crude exporter, so falling Oil prices can cut into export earnings and weigh on the Loonie. Meanwhile, the Bank of Canada (BoC) faces a difficult balancing act between containing inflation and supporting a weakening labour market, clouding the outlook for a December rate hike.
Canada shed jobs for a third straight month in October, according to Statistics Canada data released on Friday. Employment fell by 4.7K, against expectations for a gain of 13.6K.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.33% | 0.46% | 0.51% | 0.33% | 0.73% | 0.40% | 0.58% | |
| EUR | -0.33% | 0.11% | 0.16% | -0.01% | 0.39% | 0.07% | 0.25% | |
| GBP | -0.46% | -0.11% | 0.04% | -0.11% | 0.28% | -0.05% | 0.14% | |
| JPY | -0.51% | -0.16% | -0.04% | -0.17% | 0.23% | -0.10% | 0.08% | |
| CAD | -0.33% | 0.00% | 0.11% | 0.17% | 0.40% | 0.06% | 0.25% | |
| AUD | -0.73% | -0.39% | -0.28% | -0.23% | -0.40% | -0.33% | -0.14% | |
| NZD | -0.40% | -0.07% | 0.05% | 0.10% | -0.06% | 0.33% | 0.19% | |
| CHF | -0.58% | -0.25% | -0.14% | -0.08% | -0.25% | 0.14% | -0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
