Canadian Dollar holds near lows as high US yields buoy the Greenback
The US Dollar (USD) is practically flat against the Canadian Dollar (CAD) on Wednesday, hovering at a short distance from the four-week high, at 1.3724. The strong US consumer inflation figures released on Tuesday, and the rally on US Treasury yields are supporting the US Dollar, while the high Oil prices keep the Loonie from falling further.
US Consumer Prices Index (CPI) data from April confirmed the inflationary impact of the Middle East conflict as the yearly rate accelerated to its highest level in nearly three years, at 3.8%, beating expectations of a 3.7% reading, and well above the 3.3% reading seen in March. The core CPI also beat expectations, with a 2.8% growth in the last 12 months from 2.6% in March.
Fed easing expectations fall
These figures prompted investors to abandon any hope of further Federal Reserve (Fed) monetary easing in the foreseeable future, while expectations for a rate hike grow. The CME Group’s Fed Watch Tool reflects a 30% chance of a quarter-point monetary tightening before December this year, up from 15% one week ago. This is fuelling the rally in US Treasury yields, which are right below 2026 highs, and buoying the Greenback.
The Canadian Dollar, on the other hand, is drawing support from the high Oil prices amid the stalemate in the US-Iran peace process. Oil is Canada’s main export, and the WTI Oil barrel remains $97.00, boosting Canada’s trade revenues and underpinning the Loonie.
In the calendar on Wednesday, the main event will be the US Producer Price Index (PPI) for April, which is also expected to show a significant acceleration. The focus, however, will remain on US President Donald Trump's visit to China, where he is expected to discuss Iran’s conflict, Taiwan’s status, and rare earths trade, among other topics, with his Chinese counterpart, Xi Jinping.
(This story was corrected on May 13 at 07:13 GMT to say that Fed rate hike expectations for December were at 15% one week ago, and not at 21% as previously stated.)
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Japan Reportedly Plans to Double Defense Spending to 3.5% of GDP, Ministry of Defense Denies, Yet Japanese Bond Yields Hit 30-Year High
According to reports, Japanese defense officials have expressed their willingness to significantly increase defense spending during meetings with the United States. One proposal is to raise defense spending to 3.5% of GDP within ten years, while another, lower target is 3%. Japanese officials previously stated that this fiscal year's defense and related expenditures are approximately $68.8 billion, equivalent to about 1.9% of Japan's nominal GDP in 2022.
Besent Defends US Intervention to Buy Yen: Only "Symbolic" Funds Invested; Yen Appreciation Benefits US Exports and Treasury Market
U.S. Treasury Secretary Janet Yellen said on Tuesday that when the U.S. Treasury coordinated with Japan to purchase yen, only a "symbolic" amount of funds was used. She defended this rare intervention in the foreign exchange market.
Overnight US Stocks | Three Major Indexes Fall for Second Consecutive Day, 10-Year Treasury Yield Rises to Highest Level Since 2007, WTI Crude Oil Surges 4%
At the close, the Dow Jones fell 328.09 points, down 0.63%, to 52,093.10 points; the S&P 500 Index fell 34.25 points, down 0.45%, to 7,585.73 points; the Nasdaq fell 204.84 points, down 0.78%, to 25,981.57 points.
Interest rate decision to be announced soon; market betting on a 94% probability of a rate hike—if unchanged, it could become the biggest “dovish surprise” in over 30 years
As the Federal Reserve is set to announce its interest rate decision on Wednesday, bond traders have almost universally concluded that a rate hike will be the final outcome.
Crypto prices
More
