Canadian Dollar Beats G10 Peer Currencies

The Canadian dollar strengthened, Wednesday, against the U.S. dollar as oil prices rose and domestic data showed inflation climbing to its highest level in 18 years.

Broad U.S. dollar weakness prevails despite positive developments for the Canadian dollar, on the inflation front.
Canada’s annual inflation rate climbed to 4.1% in August, its highest since March 2003, boosted in part by a big jump in gasoline prices. The Bank of Canada’s three measures on inflation all reaped gains, but the central bank is expected to stick to the view that the factors pushing up inflation are temporary.

Among G10 currencies, only the Norwegian crown performed better. Norway, like Canada, is a major producer of oil, which rose after industry data showed a larger-than-expected drawdown in U.S. crude inventories.

U.S. crude oil prices settled 3.1% higher at USD 72.61 a barrel, while Canadian government bond yields rose across a steeper curve. The 10-year was up 5.3 basis points at 1.225%.

The gap between Canada’s 10-year yield and its U.S. equivalent narrowed by 2.6 basis points to 8.1 basis points in favor of the U.S. bond, signaling the smallest gap since Aug. 11.