The Canadian dollar is strengthening beyond 1.37 per US dollar as domestic price pressures ease and concerns over energy supply recede. Headline inflation in Canada slowed more than expected to 1.8% in February, the lowest rate in nearly a year and in line with the Bank of Canada’s target, despite the recent global energy shock. The deceleration was driven primarily by a marked moderation in food and shelter costs, while core measures—such as the trimmed-mean rate—fell to a four-year low of 2.3%.
Even though earlier labor market data showed a loss of 83,900 jobs and an unemployment rate of 6.7%, the loonie is finding support from a modest pullback in the US dollar and stabilizing US Treasury yields. Markets are now watching for signs of de-escalation in the Middle East after US officials indicated that Iranian tankers may be allowed to transit the Strait of Hormuz, easing immediate demand for US dollar liquidity. Investors remain focused on the forthcoming decisions from the Federal Reserve and the Bank of Canada.
