In November, Canada’s inflation rate, measured by the Consumer Price Index (CPI), remained stable at 2.2%, according to Statistics Canada. This was below the expected rate of 2.4%. The CPI rose by 0.1% in November, following a 0.2% increase in October. Meanwhile, the Bank of Canada’s Core CPI dropped by 0.1% monthly, but the annual Core CPI stayed at 2.9%, unchanged from the previous month.

Market Reaction

The news didn’t significantly impact the markets. As of press time, the USD/CAD exchange rate was at 1.3765, down 0.05% for the day. This month, the Canadian Dollar has shown strength against the US Dollar and other major currencies. The Bank of Canada believes the current interest rate is suitable for keeping inflation close to 2%. They predict underlying inflation will stay around 2.5%, with overall CPI inflation near the 2% target due to economic slack. In market analysis, USD/CAD was trading at 1.3773 on Monday, with the 20-day Exponential Moving Average signaling a bearish trend. Key support is at 1.3770, and if this level is broken, it could drop to 1.3675. The November inflation number of 2.2% fell below expectations, suggesting price pressures might be easing more than expected. This decrease reduces the likelihood of the Bank of Canada becoming hawkish soon. It supports the central bank’s position that interest rates are likely at a suitable level for now.

Core Inflation Concern

However, the annual core inflation rate remains high at 2.9%, which the Bank of Canada closely monitors. This situation prevents us from becoming too pessimistic about Canadian interest rates. The differing signals between headline and core inflation explain the lack of strong market reaction. Looking at the broader market, WTI crude oil prices have remained stable, recently trading around $82 per barrel after the latest OPEC+ meeting confirmed production cuts. While this supports the Canadian dollar, it’s not enough to drive the currency much higher on its own. Signs of slowing global growth as we approach 2026 could also limit further oil gains. At the same time, the policy gap with the United States is significant, as the US Federal Reserve maintains its benchmark rate at 5.50%. This gives the US dollar a considerable yield advantage, likely preventing major declines for the USD/CAD pair. As of mid-December 2025, interest rate futures indicate no expected rate cuts from the Bank of Canada in the first quarter of 2026, nor are any rate hikes anticipated. Given these mixed signals and the approach of the holiday market period, we shouldn’t expect strong trends in the coming weeks. Technical indicators suggest that the recent Canadian dollar movement may be overstretched, with the RSI falling below 30. For derivatives traders, this environment is ideal for range-bound strategies, such as selling strangles to collect premium. We should also remember how the Bank of Canada surprised the market with a rate hike in mid-2023 after a brief pause. This shows they will act on persistent core inflation. While a range-trading strategy seems most likely, maintaining some long volatility positions could be a inexpensive hedge against sudden changes in sentiment if upcoming data pressures the Bank to act sooner in the new year. Create your live VT Markets account and start trading now.

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