In December, the Canadian dollar surpassed 1.33 per USD, reaching its highest since early August. This was largely due to ongoing inflation in Canada, which led to increased hawkish expectations for the Bank of Canada’s monetary policy.
Contrary to expectations of a slowdown to 2.9%, November’s headline inflation stood at 3.1%. Additionally, the closely monitored trimmed-mean core rate exceeded forecasts at 3.5%. This data underscored the central bank’s caution about persistent high inflation, indicating a need for an extended restrictive monetary policy and possible rate increases. These developments stood in stark contrast to the Federal Reserve’s dovish signals, further boosting the Canadian dollar’s value against the US dollar. Preliminary data for November showed a growth in Canada’s GDP from the previous month. However, revised figures for October suggested a slowdown, aligning loosely with the Bank of Canada’s economic outlook.