USD/CAD climbs as soft Canadian CPI and firm US Dollar pressure the Loonie

• USD/CAD rises as the Canadian Dollar weakens after the October CPI release.
• Canada’s inflation slowed in October, but core prices stayed firm.
• Fed rate-cut expectations cool as traders await delayed US data.

The Canadian Dollar (CAD) trades on the back foot against the US Dollar (USD) on Monday, with USD/CAD edging modestly higher following Canada’s October inflation report. At the time of writing, the pair is trading around 1.4040, as a firmer Greenback adds to the downside pressure on the Loonie.

Canada’s headline Consumer Price Index (CPI) eased to 2.2% YoY in October, slightly above the 2.1% expected but down from 2.4% in September. On a monthly basis, CPI rose 0.2%, in line with expectations and slightly stronger than the 0.1 percent rise seen in September.

The disinflation was driven by a 9.4% YoY fall in gasoline prices and softer grocery inflation, while services inflation stayed elevated around 3%, supported by higher insurance premiums, property taxes and a sharp rebound in cellular service prices.

The Bank of Canada’s (BoC) preferred core measure showed little sign of easing, with Core CPI rising 0.6% in October after a 0.2% increase in the previous month. The annual rate also edged higher to 2.9% from 2.8%, reinforcing that underlying price pressure remains firm even as headline inflation continues to cool.

The latest inflation numbers are unlikely to change the Bank of Canada’s stance in the near term. Policymakers cut rates at the last meeting and signalled that the move could mark the end of the easing cycle if inflation continued to move lower. With headline inflation improving but core inflation still firm, the central bank may feel comfortable keeping rates steady for now.

In the United States, traders are also positioning for a wave of economic data that was delayed by the government shutdown. Markets are watching closely for clearer signals on whether the Federal Reserve (Fed) can continue its easing cycle in December after delivering back-to-back rate cuts. However, rate-cut expectations have cooled in recent days after a series of hawkish comments from Fed officials, keeping the Greemback supported.

Adding to the support for the US Dollar, the latest NY Empire State Manufacturing Index for November came in much stronger than expected at 18.7, compared with a forecast of 6.0 and a previous reading of 10.7. The upbeat survey helped keep the Greenback supported, with the US Dollar Index (DXY) trading around 99.48 and extending gains for a second straight day after slipping to two-week lows last week.