The Canadian dollar has strengthened against its US counterpart, leading to a decline in the USD/CAD trading pair, which is currently around 1.4150. This marks a continuation of its downward trend after reaching a peak of 1.4194 on Wednesday, the highest level since April 2020. The shift is attributed to the Bank of Canada’s recent indications of a more measured approach to interest rate adjustments.
On Wednesday, the Bank of Canada implemented a significant rate cut of 50 basis points, lowering the benchmark interest rate to 3.25%. This decision comes amid rising unemployment rates in Canada, which have prompted the central bank to prioritize economic stability over recent fluctuations in inflation. As the Bank of Canada navigates these economic challenges, it has suggested that its monetary policy doesn’t necessarily need to remain restrictive in the current economic landscape.
Market sentiment remains stable following the release of US inflation data that met expectations. The Consumer Price Index (CPI) for November showed an annual increase of 2.7%, slightly up from 2.6% in October, with a month-over-month rise of 0.3%. Core CPI, which excludes the more volatile items of food and energy, also increased by 3.3% year-over-year and 0.3% month-over-month, consistent with forecasts.
While the US inflation report aligns with analyst expectations, it is not anticipated to deter the Federal Reserve from proceeding with interest rate cuts in its upcoming December meeting. Market participants are now focusing on the release of the November Producer Price Index (PPI) set for Thursday, which could provide additional insights and influence trading decisions. Current predictions from market tools indicate that there is a strong likelihood of a 25 basis point reduction from the Federal Reserve in the near future.
