By Fergal Smith
TORONTO (Reuters) -The Canadian dollar edged lower against its U.S. counterpart on Tuesday, but the loonie declined less than the other Group of 10 currencies as domestic inflation data reduced expectations for Bank of Canada interest rate cuts.
The loonie was trading 0.1% lower at 1.3715 per U.S. dollar, or 72.91 U.S. cents, after trading in a range of 1.3672 to 1.3729.
Canada’s annual inflation rate rose to 1.9% in June from 1.7% in May, meeting analysts’ expectations, while CPI-median, one of the core measures of inflation closely tracked by the BoC, rose to 3.1% from 3%.
“Today’s uptick in core inflation coupled with the upside surprise in June’s labor report means the BoC is highly unlikely to cut in July,” analysts at BofA Global Research, including Carlos Capistran, said in a note.
Investors see a 5% chance the BoC cuts its benchmark interest rate from the current setting of 2.75% at the next policy announcement on July 30, down from a 14% chance before the consumer price index report, overnight index swap data showed. Chances of a cut had been seen at 27% before data on Friday that showed Canada’s economy adding 83,100 jobs in June.
U.S. consumer prices increased by the most in five months in June amid higher costs for some goods, suggesting tariffs were starting to have an impact on inflation and potentially keeping the Federal Reserve on the sidelines until September.
The U.S. dollar rose for a seventh straight day against a basket of major currencies, while the price of oil was trading 0.7% lower at $66.54 a barrel as concerns eased about an immediate supply disruption. Oil is one of Canada’s major exports.
The Canadian 10-year yield rose 9.6 basis points to 3.615%, its highest level since July last year. The gap between the 10-year yield and its U.S. equivalent narrowed by 3.6 basis points to about 87 basis points in favor of the U.S. note, which is the smallest gap in nine months.
(Reporting by Fergal Smith; Editing by Leslie Adler)
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