The Canadian dollar rose against its broadly weaker U.S. counterpart on Thursday, recovering from an earlier 12-day low as data showing a slowdown in U.S. inflation weighed on the yields of U.S. government bonds.
Treasury yields extended their fall as the inflation data dented expectations of a more aggressive pace in raising interest rates by the U.S. Federal Reserve.
A faster pace of Fed rate hikes could reduce investor incentive to buy lower-yielding instruments denominated in Canadian dollars.
The U.S. dollar held near its lowest levels in nearly two weeks after the inflation data.
At 9:58 a.m. (1358 GMT), the Canadian dollar traded 0.3 per cent higher at 1.3026 to the greenback, or 76.77 U.S. cents. The currency touched its weakest intraday level since Sept. 27 at 1.3077.
Still, the loonie climbed less than some other G10 currencies as the price of oil, one of Canada’s major exports, slumped to two-week lows.
Oil was pressured by an industry report showed that U.S. crude inventories rose more than expected. U.S. crude prices were down 1.6 per cent at $71.97 a barrel.
New home prices in Canada were unchanged in August, Statistics Canada said, falling short of the 0.1 per cent gain that analysts had estimated. The year-over-year advance in prices slowed to 0.4 per cent from 0.5 per cent in the prior month.
Canadian government bond prices were higher across much of a steeper yield curve, with the 10-year rising 2 Canadian cents to yield 2.533 per cent.
The gap between Canada’s 10-year yield and its U.S. counterpart widened by 5.5 basis points to a spread of 63.5 basis points in favour of the U.S. bond.