The Canadian dollar CADUSD edged lower against its U.S. counterpart on Monday but was holding near its strongest level in four months as oil prices rose and investors awaited domestic inflation data.
The loonie was trading 0.1 per cent lower at 1.3390 to the greenback, or 74.68 U.S. cents after moving in a range of 1.3351 to 1.3409.
On Friday, it touched its strongest level since Aug. 4 at 1.3347 as the Federal Reserve’s move to signal the possibility of interest rate cuts next year pressured the U.S. dollar.
Increased risk appetite in anticipation of central bank interest rate cuts in 2024 has helped underpin the Canadian dollar, Darren Richardson, chief operating officer at Richardson International Currency Exchange Inc, said in a note.
Economists expect the Canadian consumer price index report, due on Tuesday, to show inflation slowing to an annual rate of 2.9 per cent in November from 3.1 per cent in October.
“A higher inflation number would force the Bank of Canada to maintain current interest rate levels for a prolonged time frame and strengthen the loonie,” Richardson said.
The Canadian central bank has left the door open to further tightening even as it expresses increasing optimism about returning inflation to its 2 per cent target.
The price of oil, one of Canada’s major exports, settled 1.5 per cent higher at $72.47 a barrel as attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea disrupted maritime trade and pushed up costs of supply.
Canadian government bond yields rose across the curve. The 10-year was up 6.5 basis points at 3.187 per cent after touching on Friday a seven-month low at 3.102 per cent.
The gap between the Canadian and U.S. 10-year yields narrowed by 4.2 basis points to a level that was 76.4 basis points in favour of the U.S. note.