Canadian Fixed Mortgage Rates Hijacked By US CPI Inflation

Fixed mortgage rates in Canada are no longer moving to the beat of the Bank of Canada — they’re marching to the rhythm of U.S. inflation. In recent weeks, persistently high Consumer Price Index (CPI) readings south of the border have triggered sharp movements in U.S. bond yields, dragging Canadian bond yields — and fixed mortgage rates — along with them. Despite cooling inflation and slower growth at home, Canadian borrowers are feeling the pressure of a U.S.-led rate environment. As a result, the cost of borrowing in Canada is being shaped less by domestic fundamentals and more by what’s unfolding in Washington.

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US Inflation and Its Ripple Effect in Canada

In March 2024, US inflation came in hotter than expected at 3.5%, surprising markets and dashing hopes for imminent rate relief on both sides of the border. This 0.3% jump from February sparked a rise in bond yields and drove up the cost of borrowing — even here in Canada, where the Bank of Canada had just decided to hold rates steady.
The reason? Canada’s financial system is deeply connected to US economic movements. After the US CPI data dropped, Government of Canada 5-year bond yields surged by 14 basis points — the biggest jump since October. That surge puts immediate upward pressure on Canadian fixed mortgage rates, showing how cross-border inflation trends can shape household borrowing costs.

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Fixed Mortgage Rates Rise Despite BoC Pause

While the BoC has been signaling rate relief ahead, Canadian fixed mortgage rates are behaving differently. That’s because fixed rates are influenced more by bond markets than central bank policy. And bond markets react quickly to global trends — especially from our southern neighbour.
So despite lower inflation here in Canada, US bond volatility is spilling into our rate environment. That’s bad news for fixed-rate mortgage seekers, especially first-time buyers or anyone up for renewal.
Even a 30 basis point increase in fixed rates could push average 5-year insured rates from 4.84% to 5.14% in a matter of weeks. And if the BoC delays its next cut, we could see rates climb even higher.

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Why the US CPI Matters for Canadian Borrowers

Many Canadians don’t realize that US inflation data affects your mortgage. When US inflation is sticky, the Federal Reserve delays rate cuts. That delay boosts US bond yields, which ripple into Canadian bond markets — and ultimately influence the rates lenders offer to Canadian borrowers.
The recent rise in US bond yields means higher import costs for Canada, a weaker loonie, and inflationary pressure that could delay BoC rate cuts. This increases the risk premiums lenders charge, meaning fixed-rate mortgages may not come down even if the BoC cuts rates.
Meanwhile, Canadian core inflation is falling — but that’s being overshadowed by persistent inflation and strong consumer spending in the US. Economists are now split on whether the US will meet its 2% target anytime soon.

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Delays in Rate Cuts Shift Mortgage Strategy

Rate relief isn’t off the table — but it’s getting postponed.
Bond markets were already pricing in cuts for spring. Now, with global uncertainty and sticky US inflation, those expectations are being pushed to late summer or fall. That gap between fixed and variable rates is holding steady at over 100 basis points — a full percentage point — at most lenders.
For many Canadians, that means a tough decision:

• Go fixed now for payment certainty but risk locking in a high rate
• Choose variable and ride out short-term volatility hoping for long-term savings

With bond yields rising, fixed mortgage discounts are shrinking fast. And while the BoC may move before the Fed, lenders aren’t rushing to pass on savings — especially with rising economic risk and budget uncertainty at home.

Shrinking Discounts and the Loonie’s Pressure

If the BoC cuts rates before the Fed, it puts pressure on the Canadian dollar. The loonie has already dropped against the US dollar and could fall further, especially if Canadian interest rates diverge more sharply.
This depreciation makes US-dollar-priced goods more expensive, which could further fuel inflation here at home. And that’s why even a Canadian rate cut doesn’t guarantee cheaper fixed mortgages.
Mortgage shoppers need to understand: fixed rates are more about bond markets than central bank signals. If inflation pressures grow from a weak loonie and global trade tensions, fixed rates could stay elevated — even if the BoC cuts.

“Even as the Canadian dollar showed early signs of stabilizing ahead of CPI, U.S. inflation data has taken control of mortgage rate direction.”

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Canadian Inflation Outlook vs the US

Thankfully, Canada’s inflation picture looks more stable.

• Core inflation measures are declining
• The BoC now forecasts 2.2% inflation by year-end, down from earlier projections

That gives the central bank more room to cut rates — and the bond market is currently pricing in a 75% chance of a cut on June 5th.
But don’t count your rate drops just yet. Global headwinds, including Middle East tensions, oil price spikes, and the Fed’s caution, could still shift the BoC’s tone.
Still, Canada remains in better shape than the US, and if our inflation trend holds, mortgage rates may begin a slow descent by mid to late 2024.

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Final Advice for Homebuyers and Mortgage Holders

If you’re buying a home, refinancing, or up for renewal in the next 120 to 150 days, this is the time to lock in a rate. While variable options may look appealing, fixed-rate certainty could protect you from short-term spikes.

That said, don’t panic over headlines. Talk to a licensed mortgage expert who can guide you through:

• Rate locks based on your timeline
• Fixed vs. variable risk tradeoffs
• Strategies for first-time buyers in volatile markets

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“The Bank of Canada may hold steady, but U.S. CPI-driven bond yields are keeping Canadian mortgage rates elevated despite domestic calm.”

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Get in touch with Mortgage.Expert today — and let’s find your way forward, no matter where inflation goes next.