The Canadian dollar weakened to around 1.39 per USD in mid-September, a one-month low, following a relatively subdued inflation report. Headline CPI rose 3.0% year-on-year in August, unchanged from July and in line with market expectations. The Bank of Canada’s preferred core inflation gauges—median and trimmed-mean CPI—also remained contained at 2.0% and 1.9%, respectively, and did not accelerate despite sharply higher energy costs.
At the same time, the intensifying conflict in the Middle East has continued to push up wholesale oil and fuel prices. While higher oil prices typically support the Canadian dollar, given Canada’s role as a major crude exporter, the latest surge is also reigniting inflation concerns and bolstering the case for tighter US monetary policy. The Federal Reserve is expected to raise interest rates on September 16, which would further support the US dollar.
