The Canadian dollar strengthened to a two-week high against the U.S. dollar on Monday as higher-than-expected inflation data and rising bond yields supported the currency.
The loonie gained 0.2% to 1.3850 per U.S. dollar, or 72.20 U.S. cents, reaching its strongest intraday level since June 1 at 1.3845.
Canadian Inflation Exceeds Expectations
Canada’s annual inflation rate increased to 3% in July, above forecasts of 2.9%. The rise was partly driven by higher gasoline prices following renewed tensions between the U.S. and Iran.
Core inflation measures remained more moderate, with CPI-trim at 1.9% and CPI-median at 2%.
Bond Yields Support Canadian Dollar
Canada’s 10-year government bond yield has risen about 17 basis points over the past month, marking one of the largest increases among G7 sovereign bonds, behind only Japan.
The increase followed stronger economic data, including jobs, trade and GDP reports that pointed to a recovery in the Canadian economy after a weaker start to the year.
Tariff Uncertainty Remains
The Canadian dollar continues to face uncertainty from upcoming U.S. trade measures. The U.S. plans to introduce 50% tariffs starting August 19 on nearly $20 billion of Canadian goods, representing about 5.2% of Canada’s exports to the U.S.
RBC economists said the tariffs could have significant effects on certain industries and regions but are unlikely to derail the broader economic recovery due to their limited overall coverage.
