FX.co ★ Canadian Dollar Weakens After Inflation Data

The Canadian dollar depreciated beyond 1.38 against the US dollar, approaching its two-month low of 1.386 observed on July 31st. This movement occurred as investors assessed the latest inflation figures. In July, headline inflation decelerated to 1.7%, primarily influenced by lower gasoline prices. Nonetheless, the Bank of Canada's core inflation measures remained elevated, with the Trimmed-Mean indicator holding steady at 3.0%, slightly below the anticipated 3.1%. This scenario led the market to lean towards expectations of a more accommodating stance from the Bank of Canada. Compounding this, there was an unexpected employment change with a loss of 41,000 jobs in July, starkly contrasting the forecasted gain of 13,500 jobs, while the unemployment rate held steady at 6.9%. Additionally, the US producer prices rose unexpectedly in July, causing US yields to increase and resulting in a broad strengthening of the US dollar. This shift reduced the relative interest rate differential advantage for Canadian assets.