This morning, the critical Canadian inflation number was reported at 3.8 percent, coming in below the projected 4 percent. Given that inflation is among the most delayed of economic indicators and considering the overarching trend of a weakening Canadian economy, it seems unlikely that the Bank of Canada will raise rates in the upcoming week, and it appears that the BoC has now hit its terminal rate.
In contrast, the US retail sales figures released this morning were double the expected value. This data underscores the resilience and relative strength of the US consumer and places the US Fed in a position directly opposite to that of the BoC. The Fed may find itself compelled to continue raising interest rates or, at the very least, sustain higher rates for a more extended period.
If the US Federal Reserve is on a trajectory to raise or maintain higher interest rates while the Bank of Canada remains steady or contemplates a decrease, the USD tends to become more appealing to investors. They can potentially gain both from the interest returns and any potential appreciation of the USD due to increased demand. The emerging interest rate differential has prompted investors to move their funds to US-based assets, causing the Canadian dollar to weaken by 3/4 of a cent against the US dollar this morning.
The Canadian dollar is currently trading at 1.3630 against the US Dollar.
