By Fergal Smith
TORONTO (Reuters) -The Canadian dollar weakened to a near two-week low against its U.S. counterpart on Thursday as a surprisingly large increase in U.S. wholesale prices tempered expectations for Federal Reserve interest rate cuts.
The loonie was trading 0.4% lower at 1.3812 per U.S. dollar, or 72.40 U.S. cents, after touching its weakest intraday level since August 1 at 1.3819.
U.S. producer prices increased by the most in three years in July amid a surge in the costs of goods and services, suggesting a broad pickup in inflation was imminent, posing a dilemma for the Federal Reserve. The data virtually eliminated in the minds of investors the likelihood of a larger-than-normal half-percentage-point cut at the Fed’s September 16-17 meeting.
“The upside US PPI data surprise this morning led to a broad-based USD rally, including USD-CAD,” said Howard Du, an FX strategist at BofA Securities. “For now, the combination of strong U.S. inflation data and weak Canadian labor force data is causing the pair to trade slightly above our Q3 forecast.”
Du has forecast 1.38 for USD-CAD in Q3, with the loonie then expected to strengthen to 1.36 in Q4.
Data on Friday showed that Canada’s economy shed 40,800 jobs in July, giving back some of the substantial gains seen in the prior month.
The price of oil settled 2.1% higher at $63.96 a barrel ahead of a high-profile meeting between U.S. President Donald Trump and Russian President Vladimir Putin on Ukraine. Oil is one of Canada’s major exports.
Canadian bond yields edged higher across the curve as U.S. bond yields climbed. The 10-year was up one basis point at 3.415%.
(Reporting by Fergal Smith; editing by Diane Craft)
