Canada’s dollar gets weaker on fading stock market rally

The Canadian dollar weakened 0.3% against the American counterpart on Thursday, meanwhile November’s flash estimate has indicated relatively higher wholesale trade by 1.9% and the price of WTI crude oil increases 1.1%.

The USD/CAD is slightly changed on Thursday, trading at 1.3678 in the US session versus the previous closing at 1.36103. Canada’s CPI slows to 6.8%. There was mixed news from Canada’s November inflation report and the Canadian dollar showed little reaction. Headline CPI slowed to 6.8%, down from 6.9% in October but above the consensus of 6.7%.

The trimmed and median core rates, two key measures that the Bank of Canada uses to track core CPI, were slightly higher in November. This could leave BoC policymakers scratching their heads as to which way inflation is headed, it sounds too early to predict whether inflation has peaked and is finally moving in the right direction.

Investors hoped inflation reading could provide some clues about what to expect from the BoC at its January meeting. Inflation is still the BoC’s top priority, and at the December meeting, the BoC rate statement said that inflation was too high. The latest data is unlikely to change this view, which means that there’s a strong likelihood of the BoC delivering a modest hike of 25 basis points after back-to-back increases of 50 bp.

BoC Governor Macklem said earlier this week that the central bank had badly miscalculated the rise in inflation, and I would expect Macklem will want to see strong evidence that inflation has peaked before he will consider wrapping up the current rate tightening cycle.

One factor impacting the Canadian dollar is that the equity markets lost momentum despite preliminary domestic data showing that wholesale trade rose in November. The Canadian dollar was trading 0.3% lower at 1.3650 to the US dollar, or 73.26 US cents, after moving in a range of 1.3572 to 1.3663.

Wall Street stocks fell as investors weighed signs of a still tight US labour market. On Wednesday, the major US indexes posted their biggest daily gains so far in December. Canada is a major producer of commodities, including oil, so the Canadian dollar tends to be sensitive to shifts in investor sentiment.

Oil climbed to its highest level in two and a half weeks with US crude, heating oil and jet fuel stocks growing tighter just as a wintry blast hits the United States. WTI prices were up 1.1% at $79.14 per barrel.

Canadian wholesale trade rose 1.9% in November from October, largely reflecting higher sales in the motor vehicles and parts subsector, Statistics Canada said in a flash estimate. This reading follows mixed inflation data for the same month on Wednesday that left the door open for another interest rate increase by the Bank of Canada in January.

The Canadian government bond yields were higher across the curve. The 10-year touched its highest since Nov. 30 at 3.055% before dipping to 3.044%, up 2.2 basis points on the day.


Canada is due to auction C$4 billion ($2.9 billion) of 10-year bonds, with the bidding deadline set for 12 p.m. ET (1700 GMT).