The Canadian dollar was little changed on Friday after a benign inflation report and held steady against its US counterpart, which slipped to more than eight-month lows as the markets consider the economic impact of the US government shutdown and implications for the Federal Reserve's policy decisions.
Political wrangling over the US budget partially shut down the government for two weeks before Washington lawmakers finalised a temporary agreement this week. Investors are speculating whether the Federal Reserve will push monetary policy changes further back as a result.
"For now, when it comes to USD/CAD, it's purely a play on the US dollar. A lot of people have been seeing a lot of weakness in the US dollar," said Mazen Issa, macro strategist at TD Securities. "Generally speaking, markets have been on a risk-on mood, which is a little bit more of a benefit to the Canadian dollar and commodities-intensive currencies."
Canada's annual inflation rate was unchanged at 1.1 percent in September and core inflation was unchanged at 1.3 percent, both under the Bank of Canada's target rate of 2.0 percent, according to Statistics Canada. Issa said the report was mostly in line with expectations, and reaction from the Canadian dollar would be limited. The Canadian dollar was trading at C$1.0291 versus the greenback, or 97.17 US cents at 9:21 am (1321 GMT), little changed from Thursday's session finish at C$1.0293, or 97.15 US cents.
The currency was expected to trade between C$1.0270 and C$1.0320 for the session, Issa said. Government bond prices were positive across the maturity curve with the two-year bond gaining 1.5 Canadian cents to yield 1.170 percent and the benchmark 10-year bond adding 22 Canadian cents to yield 2.534 percent.
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