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Canadian Dollar Holds Steady Despite Inflation Dip

The Canadian dollar remained relatively unchanged compared to its U.S. dollar counterpart on Wednesday, despite data signaling a slowdown in domestic inflation. The slowdown also failed to move the Bank of Canada’s expectations on interest rates.

In August, Canada’s annual inflation dropped to 1.9% from 2% in July on lower gas prices, according to Statistics Canada. The numbers matched analysts expectations.

Excluding gasoline, consumer prices accelerated by 2.4%. Statistics Canada reported gasoline prices fell by 10.2% in August, while natural gas prices rose by 5.8%.

Based on data and trends, it is estimated that the Canadian central bank is unlikely to cut rates, despite other central banks doing so. According to BNN Bloomberg, the market has priced in less than a 25% chance the Bank of Canada will cut rates by the end of the year. 

On the other hand, the U.S. Federal Reserve is expected to ease rates on Wednesday by a quarter percentage point.

The Bank of Canada is also unlikely to change rates because of its current policy stance that core inflation remained at the 2% target in August. The common rate was 1.8%, down slightly from 1.9% in July. 

Additionally, strong economic data has supported the central bank’s reasoning to keep rates steady, disregarding signs of weakness in certain industries such as the manufacturing sector.