USDCAD Rises As Canadian Dollar Falls on Weak Inflation Data

The USDCAD currency pair was trading up over 49 pips as the US dollar gained against its Canadian peer. The release of mixed inflation data from the Canadian docket in the early American session amplified the loonie’s weakness.

According to Statistics Canada, annualised inflation in the country fell to 5.2% in February from 5.9% in January. However, the falling inflation did little to help the Canadian dollar, which remained weaker than its US peer.

The inflation figure represented a significant decline from the 5.7% figure recorded in February 2022 at the beginning of the Russia-Ukraine war, which shook global markets and supply chains that were already under pressure from the impact of COVID-19 pressures. 

The 5.2% figure was the lowest recorded since January 2022, when the inflation figure was 5.1%. However, investors were concerned about food price inflation, which soared to 10.6% compared to last year’s figure. This was also the seventh double-digit increase in food prices in Canada. 

The Canadian dollar’s weakness was further accelerated by the weak global crude oil prices as tracked by the West Texas Intermediate (WTI), which are still trading at multi-month lows last witnessed in December 2021. 

Other inflation measures, such as the core inflation rate, came in lower than expected at 0.5% versus analysts' expectations of 0.8%, while the annualised core inflation rate was 5.7% versus consensus estimates of 5.8%. The weak inflation data worked to the loonie’s disadvantage.

Investors interpreted the inflation data as a negative signal for future Bank of Canada rate hikes after the BoC paused its rate hikes earlier this month at the peak of 4.5%. The central bank will not have the impetus to hike rates further since inflation is falling. 

Therefore, the Canadian dollar could keep falling as investor expectations of future rate hikes diminish and demand for the safe-haven US dollar increases. Meanwhile, investors will look forward to tomorrow's Fed interest rate decision. 

*This is not investment advice. 

The USDCAD price chart.

The USDCAD currency pair was trading up 49.3 pips (0.36%) as the US dollar rallied higher against the Canadian dollar.