Canadian dollar extends weekly decline as U.S. inflation data spooks investors

The Canadian dollar CADUSD weakened against its U.S. counterpart on Friday, adding to this week’s decline, as hotter-than-expected U.S. producer price data challenged hopes the Federal Reserve would shift to a less aggressive path for interest rate hikes.

U.S. stock index futures turned negative after U.S. producer prices rose more than expected in November. Investors have worried that an extended period of Fed tightening to lower inflation could trigger a recession.

Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to the signal that stock markets send about global economic prospects.

The Canadian dollar was trading 0.3% lower at 1.3640 to the greenback, or 73.31 U.S. cents, after moving in a range of 1.3570 to 1.3690.

For the week, it was on track to decline 1.3% as oil slumped to its lowest level this year. U.S. crude oil futures clawed back some of those losses on Friday, rising 1.8% to $72.71 a barrel.

The Bank of Canada has also been raising interest rates aggressively. The central bank has said it will study the most recent economic data to gauge whether to raise its benchmark rate further after lifting it on Wednesday to 4.25%, its highest level in nearly 15 years.

Domestic data showed the first decline in capacity utilization since the third quarter of 2021.

Canadian industries ran at 82.6% of capacity in the third quarter of 2022, down from a downwardly revised 82.8% in the second quarter, Statistics Canada said.

Canadian government bond yields were mixed across the curve. The 10-year was unchanged at 2.801% after touching on Wednesday its lowest intraday level in nearly four months at 2.715%.

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