The Canadian dollar slipped beyond 1.382 per USD in late May, its weakest level in six weeks, pressured by subdued domestic inflation and mounting growth risks. The Bank of Canada’s preferred core inflation measures slowed more than expected to their lowest readings in five years, indicating easing underlying price pressures outside the energy sector. These figures reinforced the central bank’s recent message that energy-driven inflation is likely temporary and further lowered expectations for additional rate hikes.
At the same time, Canada’s GDP is projected to be flat in the first quarter of 2026, bolstering the view that the BoC will leave interest rates unchanged. By contrast, resilient labor market data and firmer core inflation in the United States have strengthened expectations that the Federal Reserve could raise interest rates again this year, lending support to the US dollar.
