TORONTO — The Canadian dollar rallied against its broadly weaker U.S. counterpart on Tuesday, as data showing an easing of U.S. inflation pressures supported bets the Federal Reserve would dial back the pace of its interest rate hikes.
U.S. stock index futures rallied and the greenback fell against a basket of major currencies as U.S. core consumer prices rose 0.2% last month after increasing 0.3% in October, with the year-over-year pace slowing to 6%.
The Fed is widely expected to raise rates by half a percentage point on Wednesday after tightening in steps of 75 basis points in recent months.
The Bank of Canada has also been raising rates at a rapid pace. It is trying to hike enough to tame inflation without forcing the economy into a deep recession, but the greater risk of the two is sticky inflation, which would require “much higher” rates, Governor Tiff Macklem said on Monday.
Money markets see a one-third chance the BoC would tighten by 25 basis points at its next policy decision on Jan. 25, down from 40% before the U.S. CPI data.
The Canadian dollar was trading 0.7% higher at 1.3544 to the greenback, or 73.83 U.S. cents, after touching its strongest since Dec. 5 at 1.3523.
The price of oil, one of Canada’s major exports, was supported by supply disruptions. It rose 1.6% to $74.34 a barrel.
Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year fell 11.2 basis points to 2.812%. (Reporting by Fergal Smith; Editing by Andrea Ricci)