By Ketki Saxena
Investing.com -- The Canadian dollar remained stable against the US dollar on Tuesday, May 16th, but outperformed most other G10 currencies, as higher-than-expected inflation data led investors to bet on a possible further rate hike by the Bank of Canada (BoC).
Canada's consumer price index (CPI) rose 4.4% YoY in April, marking the first increase in 10 months and exceeding the expected 4.1%.
The BoC has paused its tightening campaign, leaving its benchmark rate on hold at a 15-year high of 4.50% since January. Money markets had been anticipating a continued period of steady policy before a possible shift to rate cuts before the end of 2023. However, following the latest inflation surprise, they now see a near 50% chance of a rate increase by July - a tailwind for the loonie.
Canada's housing market has also shown signs of recovery after a year-long slump, which could add further pressure on the Canadian central bank to consider raising interest rates sooner than expected to keep inflation in check.
The US dollar meanwhile edged higher on Tuesday against a basket of currencies, as investors await a resolution to the debt ceiling talks and risk-aversion remains dominant.