Canadian Dollar: Rate-hike odds rise as energy supports economy – Commerzbank
Commerzbank’s Norman Liebke reports that markets now see a sharply higher probability of a Bank of Canada rate hike on 28 October after Governor Macklem flagged stronger support from high Oil prices and likely upward revisions to inflation forecasts. Recent data show headline inflation above prior BoC projections, while surveys point to elevated price expectations despite limited evidence of…
The Canadian Dollar (CAD) has experienced a surge to one-month highs, buoyed by expectations of the Bank of Canada (BoC) raising interest rates. The US Dollar (USD) has been pressured, resulting in a softer USD/CAD exchange rate of around 1.4052. Meanwhile, diplomatic developments in the Middle East have captured traders' attention.
Pakistan's army chief proposed a plan to Iranian officials, which the US has approved and Iran has preliminarily agreed upon. This news initially caused oil prices to drop, but they rebounded after a dispute from a US-Iran negotiator regarding the proximity of a deal. The commodity-linked CAD benefits from higher oil prices, given Canada's role as a major exporter.
Alberta, Canada's primary oil-producing region, has denied separation from the country, reducing political uncertainty. Expectations of a BoC rate increase have also bolstered the currency. Governor Tiff Macklem indicated that persistently high energy prices would lead to a significant revision of the central bank's inflation forecasts in its upcoming projections.
Canada's September inflation rate rose to 3.1%, the highest in four months, primarily driven by gasoline price increases. This data came in below expectations of 3.2%. The BoC's interest rate hike anticipation has driven Canadian bond yields higher, narrowing the spread with US yields. US yields have retreated from multi-year peaks due to investor moves into government bonds prompted by concerns over AI investments.
The 10-year US Treasury yield stands at 5.08%, down from 5.36% earlier this month. However, a potential Federal Reserve (Fed) rate hike before the year's end may cushion the US Dollar's downside. Despite this, markets anticipate a pause in Fed hikes at the October 27-28 meeting following a 25-basis-point increase in September. In the forex market, AUD/USD has reclaimed the critical 0.7000 level, gaining for three consecutive days due to the general risk appetite improvement.
Meanwhile, USD/JPY steadies around 158.50, awaiting Japan's National Consumer Price Index inflation data. Gold prices fluctuate around $4,170, still struggling to recover after a recent pullback.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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