Oil tops $100, Canadian bond yields hit 3.29%

U.S. crude oil futures rose 5.8% to $101.65 per barrel. This marked the first time prices exceeded $100 since May. The surge added pressure to global inflation expectations.

Canadian 2-year bond yields climbed 11.7 basis points to 3.288%. This is the highest level recorded since November 2024. The Canadian dollar fell 0.1% to 1.3810 per U.S. dollar.

Oil prices drive inflation fears

Supply disruption concerns fueled the recent spike in energy costs. Attacks on shipping have increased since the start of the Iran conflict. Canada relies heavily on oil exports, making it sensitive to these price shifts.

Higher oil prices are broadening inflation pressures beyond the energy sector. BMO Capital Markets notes this creates a challenging environment for the Federal Reserve. Markets now price in a higher likelihood of an interest rate hike next week.

Currency and bond market reaction

The loonie traded within a narrow range of 1.3801 to 1.3835. It pulled back from a three-week high of 1.3757 reached on Tuesday. Escalating trade tensions between the U.S. and Canada contributed to the currency's weakness.

Canadian bond yields moved higher across the entire curve. This movement tracked the rise in U.S. Treasury yields. U.S. producer price data reinforced expectations for tighter monetary policy.

Upcoming data releases impact outlook

U.S. consumer price data is due for release on Friday. This report will provide further insight into Federal Reserve rate decisions. Investors are watching for signs of persistent inflation.

Canada’s monthly Consumer Price Index is scheduled for Monday. Bank of Canada Governor Tiff Macklem stated policymakers are ready to raise rates multiple times. This stance aims to keep inflation under control if necessary.

Market participants are closely monitoring these indicators for direction. The interplay between oil prices and monetary policy remains a key driver. Source: GN auto markets/bonds: bond yields.