Daily Updates

Index (CPI) showed inflation edging higher, reversing a trend of rapid deceleration seen in 2023. The CPI increased to 3.4% compared to November’s 3.1%, serving as a rude reminder to investors that the last mile in the fight to lower inflation to the Fed’s target of 2% is still ongoing. Perhaps more importantly, it gives the edge to the Fed in the game of chicken that has the markets betting big on rate cuts, while central banks continue signaling that rates may stay elevated for the foreseeable future.

The Canadian dollar was stable on Wednesday, reflecting the overall trend in most financial markets as investors eagerly await Thursday’s crucial US CPI inflation data. After experiencing a surge towards the end of 2023, the Canadian dollar has since lost 1.25 percent against the US Dollar, primarily due to the broad strength of the US dollar.

On Tuesday, Canada’s November International Merchandise Trade Balance reported lower figures month-over-month, and Canada’s Building Permits also fell more than expected in November. Combined with crumbling oil prices, these factors have clipped the loonie’s wings.

The US Dollar has started 2024 with a bang, hitting a weekly high against the Canadian Dollar on Tuesday morning. The US Dollar was experiencing broad gains, with the Dollar Index – a measure of the U.S. currency against six major currencies – up by 0.67% at 102.05, marking the biggest daily percentage gain since October.

The Canadian dollar has been bouncing between the 1.31 and 1.32 range on thin holiday volume trading. With a lack of economic news scheduled for this week and markets in holiday mode, oil prices and geopolitical news related to the conflict in the Middle East have been the primary drivers for the USD/CAD pairing.

The Canadian dollar is holding steady at around a four-and-a-half-month high against the US dollar on Wednesday morning. The Canadian dollar has gained over 5 cents since November and 2.5 cents in the last week against the US dollar.

On Wednesday, the Federal Reserve held its benchmark federal funds rate steady for the third consecutive time. This effectively put the final nail in the coffin of this historic round of rate hikes, which saw rates go from near zero to the current range of between 5.25% and 5.5%, a 22-year high.

The Canadian dollar is a quarter of a penny lower against the US dollar on Tuesday morning, following US inflation data that came in slightly higher than expected. This development has dampened the mood of investors who had hoped for a lower inflation number to cement further rate cuts by the Federal Reserve (Fed) in 2024. Currently, the Fed has hinted at 50 basis points of cuts, while the market is expecting 100 basis points. Fewer cuts by the Fed mean a stronger US Dollar compared to the Canadian dollar.