Canadian Dollar Weakens on Soft GDP Data

2026-05-29 21:23 By Isabela Couto 1 min. read

The Canadian dollar weakened past 1.378 per USD in late May as weak economic data reinforced expectations of a dovish Bank of Canada.

Canada's economy unexpectedly contracted in the first quarter of 2026 from a year earlier, marking a second consecutive quarter of annual decline and highlighting slowing domestic momentum.

The data strengthened expectations that the BoC will keep interest rates unchanged, with markets broadly anticipating a hold at the June 10 meeting.

Meanwhile, the Bank of Canada’s preferred core inflation measures slowed more than expected to their lowest levels in five years, signaling easing underlying price pressures outside the energy sector.

The figures reinforced the central bank’s view that energy-driven inflation may prove temporary and further reduced the likelihood of additional rate hikes, weighing on the loonie.



News Stream
Canadian Dollar Weakens on Soft GDP Data
The Canadian dollar weakened past 1.378 per USD in late May as weak economic data reinforced expectations of a dovish Bank of Canada. Canada's economy unexpectedly contracted in the first quarter of 2026 from a year earlier, marking a second consecutive quarter of annual decline and highlighting slowing domestic momentum. The data strengthened expectations that the BoC will keep interest rates unchanged, with markets broadly anticipating a hold at the June 10 meeting. Meanwhile, the Bank of Canada’s preferred core inflation measures slowed more than expected to their lowest levels in five years, signaling easing underlying price pressures outside the energy sector. The figures reinforced the central bank’s view that energy-driven inflation may prove temporary and further reduced the likelihood of additional rate hikes, weighing on the loonie.
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Canadian Dollar Falls to 6-Week Low
The Canadian dollar weakened past 1.382 per USD in late May, its lowest in six weeks, amid a backdrop of soft inflation domestically and risks to growth. The Bank of Canada’s preferred core inflation gauges slowed more than expected to their lowest levels in five years, signaling easing underlying price pressures outside the energy sector. The data reinforced recent guidance from the central bank that energy-driven inflation may prove temporary and reduced expectations of additional rate hikes. Meanwhile, Canada’s GDP is expected to stagnate in the first quarter of 2026, further supporting expectations that the BoC will keep rates unchanged. In contrast, resilient labor market data and firmer core inflation in the US strengthened expectations that the Federal Reserve could raise interest rates again this year, supporting the US dollar.
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The Canadian dollar weakened to 1.38 per USD in May as softer core inflation data reinforced expectations that the Bank of Canada may continue looking through the impact of higher energy prices. While headline inflation accelerated to 2.8% in April due to rising gasoline costs linked to the Middle East conflict, the Bank of Canada’s preferred core inflation gauges slowed more than expected to their lowest levels in five years, signaling easing underlying price pressures outside the energy sector. The data aligned with recent central bank guidance that energy-driven inflation may prove temporary and reduced expectations of rate hikes. Conversely, robust labor data and higher core inflation in the US raised expectations of a rate hike by the Federal Reserve this year, supporting the US dollar.
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