Canadian Dollar Peaks Amid Inflation Concerns
Solid ECN – In December, the Canadian dollar reached its highest level since early August, surpassing 1.335 against the USD. This strengthening is a result of persistent inflation within the Canadian economy, which has reignited expectations for a more aggressive monetary policy from the Bank of Canada. Contrary to market anticipations of a slowdown to 2.9%, headline inflation remained steady at 3.1% in November. Moreover, the trimmed-mean core rate, a key measure of inflation, exceeded forecasts by reaching 3.5%.
These figures support the central bank’s earlier predictions that inflation in Canada is likely to stay high for some time. This situation calls for an extended period of tight monetary policy, possibly including additional interest rate increases. In contrast, the Federal Reserve in the United States has signaled a more cautious approach, with policymakers indicating expected rate cuts totaling 75 basis points for the next year. This difference in policy stances has further amplified the Canadian dollar's rise in value compared to the US dollar.