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Canadian Dollar recovery stalls after inflation falls short of expectations
- USD/CAD pauses its decline as softer Canadian inflation data limit gains in the Loonie.
- Softer core inflation reinforces expectations that the BoC will keep interest rates unchanged.
- Traders expect another Fed interest rate hike by December, keeping the US-Canada rate gap in focus.
USD/CAD pauses its decline on Monday after the Canadian Dollar (CAD) briefly strengthened to its highest level in a month at the weekly open. Softer-than-expected Canadian inflation data limit further gains in the Loonie, while the US Dollar (USD) stabilizes following last week’s correction from 18-month highs. At the time of writing, USD/CAD trades around 1.4091 after touching an intraday low of 1.4070, down nearly 0.35% on the day.
Statistics Canada reported that the Consumer Price Index (CPI) rose 0.1% MoM in September, following a 0.1% decline in August and falling short of the 0.2% increase expected. Annual inflation edged up to 3.1% from 3.0%, although it remained below the 3.2% forecast. The Bank of Canada’s (BoC) core CPI was unchanged on the month, while the annual rate eased to 2.2% from 2.4%.
The headline increase was largely driven by energy prices, which rose 19% YoY, including a 27.8% surge in gasoline prices. However, the details point to softer underlying price pressures, with the BoC’s preferred core measures hovering near the 2% target and suggesting limited spillover from higher energy costs into broader inflation.
The inflation report, combined with deteriorating labour market conditions after the Canadian economy shed 68,300 jobs in September, limits the scope for the Bank of Canada to raise interest rates. The central bank has kept its policy rate unchanged at 2.25% throughout this year.
In contrast, stronger-than-expected US inflation data released last week keep the Federal Reserve (Fed) on a tightening path as it seeks to return inflation to its 2% target. However, policymakers appear cautious about delivering back-to-back increases after raising the federal funds rate by 25 basis points in September to the 3.75%-4.00% range. The CME FedWatch Tool shows traders pricing in a 15% probability of a rate hike this month and an 89% chance of an increase by December.
The widening interest-rate gap between the United States and Canada could keep the US Dollar favoured over the Canadian Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.85 after falling to 101.58 last week.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | -0.01% | 0.19% | -0.35% | -0.59% | -0.34% | 0.03% | |
| EUR | -0.12% | -0.13% | 0.07% | -0.46% | -0.71% | -0.49% | -0.09% | |
| GBP | 0.01% | 0.13% | 0.21% | -0.35% | -0.59% | -0.35% | 0.04% | |
| JPY | -0.19% | -0.07% | -0.21% | -0.51% | -0.85% | -0.52% | -0.12% | |
| CAD | 0.35% | 0.46% | 0.35% | 0.51% | -0.22% | -0.01% | 0.39% | |
| AUD | 0.59% | 0.71% | 0.59% | 0.85% | 0.22% | 0.24% | 0.63% | |
| NZD | 0.34% | 0.49% | 0.35% | 0.52% | 0.00% | -0.24% | 0.39% | |
| CHF | -0.03% | 0.09% | -0.04% | 0.12% | -0.39% | -0.63% | -0.39% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
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