The Canadian dollar gained ground on Wednesday after data showed headline inflation in December rose 3.4% year-on-year, outpacing forecasts of 3.2% and marking the first increase in three months.
Statistics Canada reported the consumer price index climbed 0.3% on a monthly basis, driven by higher prices for food and shelter. Core inflation, which excludes volatile food and energy prices, also exceeded expectations at 3.4% year-on-year, up from 3.3% in November.
The Canadian dollar, often referred to as the loonie, strengthened against the U.S. dollar, with the USD/CAD pair slipping 0.2% to 1.3450. The currency’s advance reflects growing confidence in the Bank of Canada’s ability to manage inflation amid persistent price pressures.
Market participants now expect the central bank to maintain its current policy stance, with some analysts suggesting a potential delay in rate cuts that were previously anticipated for mid-2024. The Bank of Canada has held its benchmark interest rate at 5% since July 2023, citing concerns over inflation remaining above the 2% target.
The loonie’s gains were also supported by a softer U.S. dollar, which weakened broadly following mixed economic data from the United States. The Federal Reserve’s December meeting minutes, released earlier this week, indicated a cautious approach to rate cuts, further contributing to the greenback’s decline.
Investors will closely monitor upcoming economic releases, including retail sales and employment data, for further signals on the inflation trajectory and potential policy shifts.
