The USD/CAD currency pair displayed relative stability on Monday, trading near 1.3761, despite recent economic data from Canada which fell short of market expectations. In December, the CPI sank to -3.9. That would be a big decrease from November’s number of 18.7. This drop was dramatic in its own right, plunging well below analyst expectations of 10.6 and sending people scrambling to reassess economic conditions north of the border.
According to recent CPI data, inflation is finally cooling down. This month, the rate increased by just 0.1%, less than half of November’s 0.2%. The point core CPI actually held flat at 2.9% year-over-year but dropped 0.1% month-on-month in November, so now y/y at core CPI positive and m/m negative. These are positive signs that inflationary pressures are continuing to moderate. Such a trend may be significant when the Bank of Canada determines the direction of Ontario’s future monetary policy. The inflation report has reduced demand for the Canadian dollar, or Loonie. With inflation in Canada turning hotter than expected, this helped the USD/CAD to recover a bit after making an intraday low of ~ 1.3747.
On that note, the U.S. economic calendar is about to get a lot busier over the next few days. All this unprecedented action might be setting expectations for the Federal Reserve’s policy direction going into 2026. Perhaps the most anticipated report of all – Nonfarm Payrolls (NFP) for October and November – analysts are innocently looking for a rebound. Now it’s scheduled for rollout on Tuesday. This data will inform us on how strong overall employment is and where we’re seeing potential new economic growth, all of which will further impact market sentiment.
Additionally, the upcoming CPI release on Thursday will be closely monitored as it may impact both the U.S. dollar and Canadian dollar valuations. The Greenback is under wide-ranging pressure right now. For good reason, market participants watch and speculate how these somewhat stinger reports will shape central bank policy on both sides of the border.
And the financial markets are reasonably reacting to these economic indicators with extreme caution. Canada’s CPI just came in negative, raising concerns about how much resilience might be left in the economy. Here’s how this shift might filter through to interest rate decisions made by the Bank of Canada (BoC). Easing inflation prints make it more likely that interest rates should stay where they are. That trend may be on its way to changing if those softer readings hold up in the next few reports.