FX.co ★ Canadian Dollar Rises to Monthly High

In September, the Canadian dollar strengthened, surpassing 1.38 against the US dollar, reaching its highest level for the month. This rise followed domestic data that bolstered expectations regarding the Bank of Canada's cautious approach towards reducing interest rates. Although the headline Consumer Price Index (CPI) increased by 1.9% year-on-year in August—slightly below the 2.0% consensus—the core inflation measures, specifically the trimmed mean and median, remained close to 3.0%. This suggests persistent underlying inflation when excluding volatile items. These data points, coupled with indications of ongoing economic resilience, suggest the Bank of Canada can maintain a tighter monetary policy for an extended period. Consequently, the probability of a swift easing cycle has decreased, with markets now anticipating only a modest 25-basis-point rate cut at the next meeting, rather than a more aggressive reduction. Concurrently, the Canadian dollar has faced less external pressure due to a softer US dollar, influenced by expectations of a forthcoming 25-basis-point cut by the Federal Reserve and additional easing measures this year.