Loonie Weakens as Oil Surge Fuels Rate Worries
The Canadian dollar has weakened on Tuesday as a surge in oil prices fueled inflation concerns and lifted U.S. Treasury yields, offsetting the traditional support that commodity rallies provide to the loonie.
The Loonie traded around C$1.3910 per U.S. dollar, near 71.9 U.S. cents, after touching a 12-day low of C$1.3929 on Monday.
The data showed that Canada's annual inflation held steady in August at 6.9%, but did not point to a broad acceleration in underlying inflation. Brent crude prices climbed above $107 a barrel as escalating Middle East tensions raised concerns about disruptions to global energy supplies, typically benefiting major oil exporters like Canada.
The U.S. 10-year Treasury yield has risen above 5%, increasing the dollar's yield advantage and reducing the boost the loonie would normally receive from higher oil prices. Markets are now heavily focused on the Federal Reserve meeting on Wednesday, with investors pricing a high probability of a rate increase.