Interest rate increases "not done yet," say investors
The Canadian dollar strengthened by 0.5% against its US counterpart on Tuesday amid investor talks of another significant interest rate hike by the Bank of Canada next month.
According to a Reuters report, the Canadian dollar was trading 1.284 higher than the greenback, at a range of about 1.2832 to 1.2928. This came despite a drop in the price of oil, one of the country’s major exports. By comparison, US crude oil was 3.2% lower at $86.53 a barrel, the lowest for the US since before Russia invaded Ukraine.
The annual inflation rate in Canada slowed to 7.6% in July largely due to gasoline prices easing. Bank of Canada governor Tiff Macklem commented in an op-ed that this level of inflation is still far from the target of 2%, hinting that the central bank will keep rising interest rates in the future.
The Reuters report also noted money markets were pricing in 59 basis points of tightening by the central bank at its next policy announcement on September 7, up 53 basis points from before Statistics Canada released the latest inflation numbers.
“The level of inflation is probably still concerning to the Bank of Canada and suggests that they’re not done yet (hiking interest rates),” Michael Greenberg, SVP and portfolio manager at Franklin Templeton Investment Solutions, told Reuters.
Additionally, Canadian government bond yields jumped across a flatter curve. According to Reuters, the two-year touched its highest level since July 14 at 3.372% before dropping to 3.336%. This was up 12.7 basis points on the day, as the 10-year went up eight basis points at 2.775%.
