CANADA FX DEBT-C$ rallies as hot core CPI data bolsters rate hike bets

BY Reuters | ECONOMIC | 08/16/22 02:47 PM EDT
    (Adds investor quote and details throughout, updates prices)
    * Canadian dollar strengthens 0.5% against greenback
    * Measures of core inflation rise
    * Price of U.S. oil settles 3.2% lower
    * Canadian bond yields rise across flatter curve

    By Fergal Smith
    TORONTO, Aug 16 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Tuesday as investors raised bets
on another oversized interest rate hike by the Bank of Canada
next month after domestic data showed rising underlying
inflation pressures.
    Canada's annual inflation rate slowed to 7.6% in July as
gasoline prices eased, but that was still far above the Bank of
Canada's 2% target, while the average of the central bank's
preferred measures of core inflation ticked up to 5.3%.

    Canadian inflation may have peaked, but it remains far too
high, BoC Governor Tiff Macklem said in a newspaper op-ed.

    "The level of inflation is probably still concerning to the
Bank of Canada and suggests that they're not done yet (hiking
interest rates)," said Michael Greenberg, SVP and portfolio
manager, Franklin Templeton Investment Solutions.
    Money markets were pricing in 59 basis points of tightening
by the central bank at its next policy announcement on Sept. 7,
up from 53 basis points before the data. In July, the BoC hiked
by a full percentage point.
    The Canadian dollar        was trading 0.5% higher at 1.2840
to the greenback, or 77.60 U.S. cents, clawing back some of the
previous day's sharp decline that came as the U.S. dollar
broadly rallied. It traded in a range of 1.2832 to 1.2928.
    The move higher for the loonie came despite pressure on the
price of oil, one of Canada's major exports.
    U.S. crude oil futures        settled 3.2% lower at $86.53 a
barrel, their lowest since before Russia's invasion of Ukraine,
as economic data spurred concerns about a potential global
recession.
    Canadian government bond yields jumped across a flatter
curve.
    The 2-year            touched its highest since July 14 at
3.372% before dipping to 3.336%, up 12.7 basis points on the
day, while the 10-year             was up 8 basis points at
2.775%.

 (Reporting by Fergal Smith; Editing by Mark Heinrich and Alex
Richardson)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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