The Canadian dollar was little changed against its much stronger U.S. counterpart on Tuesday, with investors saying there is less chance the Bank of Canada will cut interest rates next month after data on inflation higher than expected.
Canada’s annual inflation rate unexpectedly accelerated to 2.9% in May, from 2.7% in April, while key measures of core inflation rose slightly for the first time in five months.
“It is difficult to say at this stage whether the May consumer price index is merely resuming the faster pace of deceleration in inflation seen over the past four months, or whether further pressures on prices appear,” Geoff Phipps, trading strategist and portfolio manager at Picton Mahoney, said in a note.
“Whether the July meeting is conducive to further reduction will depend on upcoming data, of which there is plenty ahead of the July meeting.
Investors see a 45% chance that the Bank of Canada will cut rates in its next monetary policy decision on July 24, up from 65% before the inflation report, according to swap market data .
Earlier this month, the BoC became the first G7 central bank to begin easing monetary policy, lowering its benchmark rate by 25 basis points to 4.75%.
The Canadian dollar traded almost unchanged at 1.3650 to the U.S. dollar, or 73.26 U.S. cents, after moving in a range of 1.3632 to 1.3680.
It is the only currency, aside from the British pound, that has not lost ground against the U.S. dollar after upbeat comments from a Federal Reserve official.
The price of oil, one of Canada’s top exports, was down 0.7% at $81.08 a barrel, while Canadian bond yields rose across the curve.
The 10-year was up 5 basis points at 3.382%, the gap with the American equivalent narrowing by 5.6 basis points to 86 basis points in favor of the American note. (Reporting by Fergal Smith in Toronto; Writing by Anil D’Silva and Matthew Lewis)
