The Canadian dollar CADUSD weakened against the greenback on Tuesday, pulling back from a near two-week high, as oil prices fell and investors braced for domestic inflation data that could impact bets on further Bank of Canada interest rate hikes.
The loonie was trading 0.6% lower at 1.3785 per U.S. dollar, or 72.54 U.S. cents, after earlier touching its strongest level since Oct. 6 at 1.3658.
The decline in oil prices “seems to be weighing on the loonie,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
“The other factor that may be coming in to play is nervousness ahead of tomorrow’s CPI print. It is arguably the biggest data point of the year.”
The price of oil, one of Canada’s major exports, settled 3.1% lower at $82.82 a barrel on fears of higher U.S. supply amid an economic slowdown and lower Chinese fuel demand.
Among G10 currencies, only the Norwegian crown fell more than the loonie. Norway is also a major oil producer.
Economists expect Canada’s inflation report, due on Wednesday, to show further easing of inflation pressures in September.
The Bank of Canada has raised interest rates three percentage points since March to a 14-year high of 3.25% in an effort to subdue price pressures.
Analysts polled by Reuters expect the central bank will raise its policy rate a further 50 basis points at a policy decision next week. That would be a smaller hike than at previous meetings but the central bank is then expected to lift rates to an even higher peak than expected last month.
In domestic data, housing starts climbed 11% in September from August, posting their highest level in 10 months.
Canadian bond yields were lower across the curve, with the 10-year easing 6.3 basis points to 3.360%.