Canadian Dollar Steady on Softer Inflation

The Canadian dollar was at 1.41 per USD, holding most of the pullback from the one-month low of 1.40 on July 17th after a soft PPI added to the disinflationary momentum in Canada. Canada's producer prices fell 1.4% month-over-month in June 2026, the sharpest decline since December 2023. Meanwhile, annual consumer inflation eased to 2.8% in June from 3.2% in May, slightly below forecasts of 2.9%. The Bank of Canada's preferred core inflation measures fell to their lowest levels in more than five years, reinforcing the BoC's view that higher energy costs stemming from the Middle East oil supply crisis are not spreading broadly through the economy. The softer inflation data reduced expectations of further Bank of Canada rate hikes this year, limiting the yield advantage that has supported the Canadian dollar.

The Canadian dollar weakened to around 1.41 per USD in July, pulling back from a near one-month high following the release of June's inflation report. Canada's annual inflation rate eased to 2.8% in June 2026 from 3.2% in May, slightly below forecasts of 2.9%. Gasoline prices increased at a slower pace, while the Bank of Canada's preferred core inflation measures fell to their lowest levels in more than five years, reinforcing the BoC's view that the impact of higher energy costs stemming from the Middle East oil supply crisis is not spreading broadly throughout the economy. The softer inflation data reduced expectations of further Bank of Canada interest rate hikes this year, lowering the relative yield that attracts foreign capital. At its latest meeting, the Bank of Canada kept its key policy rate unchanged at 2.25%, as widely expected.

The Canadian dollar strengthened to around 1.40 per USD in July, reaching its strongest level in nearly a month after the Bank of Canada kept its key policy rate unchanged at 2.25%, as widely expected. The central bank struck a relatively hawkish tone, noting that the economy is showing signs of improvement, with stronger growth projected over the medium term and inflation expected to remain above previous forecasts in 2026 before gradually easing. Policymakers also highlighted persistent risks stemming from the conflict in the Middle East and US trade policy, reinforcing expectations that interest rates will remain unchanged for an extended period. The loonie also benefited from a softer US dollar after US producer prices came in below expectations.