The Canadian dollar is strengthening against its US counterpart in the middle of the trading week, despite inflation at its highest level in nearly two decades. The loonie found support in rising bond yields and surging energy commodities. Can the loonie generate momentum in the final quarter of 2021?
According to Statistics Canada, the annual inflation rate advanced to 4.4% in September, topping market estimates of 4.3%. This is up from the 4.1% reading in August. On a monthly basis, the consumer price index (CPI) is up 0.2%, slightly higher than the 0.1% boost in the previous month.
The core inflation rate, which eliminates the volatile food and energy sectors, climbed 3.7% in the 12 months ending September.
Overall, Canada is facing the highest inflation rate since February 2003, with upward pricing pressures in energy, transportation, shelter, and food.
Despite central banks insisting that high inflation is transitory, many financial experts are anticipating a sky-high cost of living until the second half of next year.
“Back at the onset of this, we were thinking that it could last maybe a few months or so, but now it’s looking like it could linger on for some time,” said Sri Thanabalasingam, an economist with TD Bank, in an interview with CBC News. “Maybe until the second half of 2022. But it’s very, very uncertain right now.”
Later this week, employment, housing, and retail sales data will be released.
Energy prices gained midweek, with November West Texas Intermediate (WTI) crude oil futures rising $1.19, or 1.44%, to $83.63 a barrel. November natural gas futures tacked on $0.069, or 1.36%, to $5.157 per million British thermal units (btu).
Since Canada maintains a current account deficit, the country’s economic growth relies primarily on exports. Because the nation’s top shipments are oil and gas, any price change can have an impact on the economy and the loonie.
The Canadian bond market was mixed on Wednesday, with the benchmark 10-year yield up 0.018% to 1.648%. The one-year bill slid 0.02% to 0.48%, while the 30-year bond advanced 0.038% to 2.045%.
The USD/CAD currency pair dropped 0.43% to 1.2321, from an opening of 1.2358, at 21:06 GMT on Thursday. The EUR/CAD was flat at 1.4354.