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.

Vishal Chaturvedi FXStreet

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 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 BoC’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 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 Greenback 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, extending gains for a second straight day after slipping to two-week lows last week.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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