The Canadian dollar recovers from a four-week low as investors assess US inflation data.
On Tuesday, the Canadian dollar edged higher against the US dollar, recovering from its lowest level in nearly four weeks, as oil prices rose and US data showed underlying inflation rising less than expected in March.
The 12-month increase in core CPI in the United States was 6.5 % , the largest since August 1982, but less than the 6.6 % rate expected by economists.
Investors have been bracing for aggressive action by the Federal Reserve and the Bank of Canada to curb inflation. The Bank of Canada is expected to raise interest rates by a half-percentage point on Wednesday, the first such increase since May 2020.
It could also take steps to reduce the size of its bloated balance sheet, a process known as quantitative tightening.
Oil , one of Canada’s major exports, was up 3.9 % at $97.94 a barrel, as Shanghai eased some COVID-19 restrictions, easing concerns about Chinese demand, and OPEC said it would be impossible to replace potential Russian supply losses.
After reaching its lowest intraday level since March 17 at 1.2661, the Canadian dollar (USDCAD) was trading 0.2 % higher at 1.26 to the greenback, or 79.37 US cents.
Canadian government bond yields fell across the curve, mirroring the decline in US Treasuries. The 10-year (CA10YT=RR) fell 3.9 basis points to 2.66 % after reaching a high of 2.735 % earlier in the day.
Prospects of Global Recession Rise as Inflation Hits Record 8.5%
Today, news of record-high inflation rates in the United States hit the streets. According to April data from the U.S. Bureau of Labor Statistics, the year-on-year consumer price index is at a 40-year high of 8.5 percent, raising concerns about a potential global recession, which could spell doom for risky assets such as stocks and cryptocurrency.
The inflation figures released today are broadly in line with economists’ expectations.
According to the latest data published by the U.S. Bureau of Labor Statistics today, the consumer price index increased by 1.2% on the month in March, placing the current annual inflation rate in the U.S. at 8.5%—the highest since December 1981. Gasoline, food, and shelter indexes saw the highest increases in price, the Bureau said, with the gasoline index rising 18.3% in March and accounting for over half of the CPI’s increase. The energy index has risen 11% on the month, following a 3.5% increase in February.
This process, known as quantitative tightening, aims to reduce the circulating money supply in the economy in order to reduce consumer demand and, as a result, slow the rate of inflation. Experts are concerned that tightening monetary policy in the face of increasingly uncertain geopolitical and macroeconomic conditions will slow the US economy and tip the world into a global recession. Risky assets such as growth technology stocks and cryptocurrency have historically performed poorly during recessions or economic contractions.
German Institutes To Cut 2022 Economic Forecast
German economic institutes are going to significantly cut their 2022 economic growth forecasts to 2.7% from 4.8% due to the effects of the war in Ukraine on German economy.
The institutes also foresee a rise in consumer prices to more than 6%, up from the previous forecast of 2.5%. Forecast for 2023 seems to be more optimistic with gross domestic product poised for a rise of 3.1%, higher than the previous estimate of 1.9%.