Investors cheer U.S. inflation data, loonie climbs to eight-day high

Canadian dollar CAD USD The dollar rose against broadly weaker U.S. currencies on Tuesday as data showed easing U.S. inflationary pressures, supporting bets the Federal Reserve would slow the pace of rate hikes.

U.S. core CPI rose 0.2 percent last month after rising 0.3 percent in October, slowing year-on-year growth to 6 percent, while U.S. stock futures rose and the dollar fell against a basket of major currencies.

The Fed is widely expected to raise rates by half a percentage point on Wednesday after tightening policy in steps of 75 basis points in recent months.

The Bank of Canada has also been raising interest rates at a rapid pace. Governor Tiff Macklem said on Monday it was trying to raise interest rates to curb inflation without forcing the economy into a deep recession, but the bigger risk to both was sticky inflation, which would require “significantly higher” rates.

Money markets are pricing in a one-in-three chance the Bank of Canada will tighten by 25 basis points at its next policy decision on Jan. 25, down from 40% ahead of the US CPI data.

The Canadian dollar rose 0.7% to 1.3544, or 73.83 cents US, after touching 1.3523, its highest since Dec. 5.

Oil prices, one of Canada’s main exports, have been supported by supply disruptions. It rose 1.6 percent to $74.34 a barrel.

Canadian government bond yields were lower across the board, tracking U.S. Treasuries. The 10-year Treasury note fell 11.2 basis points to 2.812%.