Canadian dollar hits two-week high as inflation accelerates

The Canadian dollar climbed to a two-week high against its U.S. counterpart on Monday and bond yields rose as domestic data showed inflation ​rising at a faster pace than expected, with investors looking ahead to a ‌key deadline for new U.S. tariffs on goods from Canada.

The loonie was trading 0.2% higher at 1.3850 per U.S. dollar, or 72.20 U.S. cents, after touching its strongest intraday level since June ​1 at 1.3845.

Canada's annual inflation rate accelerated to 3% in July, eclipsing expectations ​for 2.9%, as renewed U.S.-Iran tensions drove gasoline prices higher. The ⁠core inflation measures, CPI-trim and CPI-median, were more subdued at 1.9% and 2%, respectively.

"Overall, ​the July report remains consistent with a relatively favourable combination of firming economic growth and ​underlying inflation close to target," Nathan Janzen and Abbey Xu, economists at Royal Bank of Canada, said in a note.

"The approaching U.S. tariff deadline adds uncertainty, and the proposed measures would have significant ​consequences for some affected industries and regions. But their narrow coverage means they are ​unlikely to derail the broader economic recovery," the RBC economists said.

Canada's 10-year yield has climbed about ‌17 basis ⁠points over the past month or so, the biggest increase among G7 sovereign bonds except for those of Japan, as jobs, trade and GDP data pointed to recovery in the domestic economy after a slow start to the year.

The U.S. has said that, ​starting on August 19, ​it will impose ⁠50% tariffs that would cover nearly $20 billion of Canadian goods, or about 5.2% of Canada's exports to the U.S.

Dominic LeBlanc, the Canadian ​minister responsible for trade with the U.S., told an advisory committee ​on Friday ⁠that Canada and the U.S. are still far from reaching a draft trade deal despite regular meetings.

Separate data showed that foreign investors bought a net C$40.83 billion ($29.46 billion) in Canadian securities ⁠in ​June, led by federal government bonds.

Still, Canadian bond yields ​moved higher across a steeper curve. The 30-year was up 2.6 basis points at 4.117%, after earlier touching ​its highest level since March 2010 at 4.145%.


-Reuters