The Canadian dollar weakened against the US dollar, as markets reacted to hawkish remarks from Federal Reserve officials, including Governors Bowman and Waller.
Their comments signaled that interest rates could remain elevated longer, strengthening the greenback.
On the geopolitical front, the US-Russia talks on the Ukraine conflict add another layer of complexity. Should the negotiations yield results, the Loonie may experience a bullish momentum, while a setback could exert pressure on the Canadian currency as investors move to safe-haven assets.
Domestically, the latest inflation data should improve the currency’s short-term outlook. January’s Consumer Price Index (CPI) grew by 1.9% year-on-year, up from 1.8% in December, driven primarily by surging energy costs. Excluding gasoline, the index increased by 1.7%, highlighting the energy’s role in inflationary pressures.
Meanwhile, food prices experienced a notable 5.1% decline in restaurant food prices, driven by the GST/HST exemption introduced in December 2024. On the other hand, shelter prices increased by 4.5%, reflecting continued pressures in the property market. Inflationary pressures could affect the Bank of Canada’s rate-cut cycle, providing some support for the national currency.
Looking forward, investors will closely monitor upcoming domestic economic indicators. Weak data is likely to exert additional selling pressure on the currency, while strong results could boost the Loonie.
