C$ rallies as hot core CPI data bolsters rate hike bets


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TORONTO — The Canadian dollar strengthened

against its U.S. counterpart on Tuesday as investors raised bets

on another oversized interest rate hike by the Bank of Canada

next month after domestic data showed rising underlying

inflation pressures.

Canada’s annual inflation rate slowed to 7.6% in July as

gasoline prices eased, but that was still far above the Bank of

Canada’s 2% target, while the average of the central bank’s

preferred measures of core inflation ticked up to 5.3%.

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Canadian inflation may have peaked, but it remains far too

high, BoC Governor Tiff Macklem said in a newspaper op-ed.

“The level of inflation is probably still concerning to the

Bank of Canada and suggests that they’re not done yet (hiking

interest rates),” said Michael Greenberg, SVP and portfolio

manager, Franklin Templeton Investment Solutions.

Money markets were pricing in 59 basis points of tightening

by the central bank at its next policy announcement on Sept. 7,

up from 53 basis points before the data. In July, the BoC hiked

by a full percentage point.

The Canadian dollar was trading 0.5% higher at 1.2840

to the greenback, or 77.60 U.S. cents, clawing back some of the

previous day’s sharp decline that came as the U.S. dollar

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broadly rallied. It traded in a range of 1.2832 to 1.2928.

The move higher for the loonie came despite pressure on the

price of oil, one of Canada’s major exports.

U.S. crude oil futures settled 3.2% lower at $86.53 a

barrel, their lowest since before Russia’s invasion of Ukraine,

as economic data spurred concerns about a potential global

recession.

Canadian government bond yields jumped across a flatter

curve.

The 2-year touched its highest since July 14 at

3.372% before dipping to 3.336%, up 12.7 basis points on the

day, while the 10-year was up 8 basis points at

2.775%.

(Reporting by Fergal Smith; Editing by Mark Heinrich and Alex

Richardson)



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