The Canadian dollar fell against its U.S. counterpart as domestic inflation data raised expectations for continued interest rate cuts by the Bank of Canada.
On Tuesday, the Canadian dollar experienced a decline against the U.S. dollar, trading 0.2% lower at 1.3655 per U.S. dollar, after hitting its lowest intraday level since February 6. This decline comes as the U.S. dollar recorded gains, coinciding with the release of Canadian inflation figures that suggest the Bank of Canada may persist with its interest rate cut policy. The economic landscape indicates shifting market expectations amid changing inflation dynamics.
In January, Canada's annual inflation rate slowed to 2.3%, down from 2.4% the previous month. This moderation is primarily attributed to a significant drop in gasoline prices which helped mitigate the effects of rising food and clothing prices. Analysts had predicted that inflation would remain steady at 2.4%, highlighting some discrepancies between forecasts and actual figures. This inflation trend impacts monetary policy considerations moving forward.
Douglas Porter, the chief economist, emphasized in a note that the threshold for further interest rate cuts remains quite high. He pointed out that the central bank has clarified that monetary policy adjustments alone cannot resolve supply chain crises. This statement signals a cautious approach by the Bank of Canada, particularly in light of ongoing economic challenges, as they navigate between supporting growth and controlling inflation.
