The Canada Consumer Price Index (CPI) for Core remained unchanged at 0.2% in December. This indicates stable inflation in the core sector, suggesting that consumer prices are holding steady. This stability may influence future decisions regarding monetary policy. The CPI helps us understand how inflation affects purchasing power and the broader economy. Keeping track of inflation trends is crucial since they can impact central bank policies, including changes in interest rates.

Stable Inflation Environment

A steady core CPI signals a stable inflation environment in Canada, providing valuable insights for economic forecasts and policy planning. External factors such as geopolitical tensions, tariffs, and economic indicators can also affect financial markets. These events can influence various assets like currencies and commodities. Overall, understanding these trends is essential for analyzing market movements. These factors require careful monitoring as they change over time. Recent data shows that Canada’s core inflation remained steady at 0.2% month-over-month in December 2024. This brings the annual rate to a manageable 2.8%, which is acceptable for the Bank of Canada. For traders, this suggests that the Bank of Canada is not in a hurry to raise interest rates from their current level of 4.25%.

Potential Rate Strategies

This stability gives the Bank of Canada some breathing room, which many central banks do not have as 2026 begins. It allows us to expect different policy approaches between Canada and the US, where inflation might behave differently. Therefore, traders should consider strategies that take advantage of the interest rate gap between the two currencies. Looking back at late 2025, we noticed that renewed US-EU tariff threats caused significant market concerns. That risk-off sentiment continues to weaken the US dollar against commodity currencies. With Canada’s stable economy, the Canadian dollar appears more appealing. In this context, it may be wise to short the US dollar against the Canadian dollar, similar to what happened during previous tensions. Buying put options on the USD/CAD pair could capitalize on potential declines in the coming weeks, providing a defined-risk approach amid ongoing political uncertainty in the U.S. The safe-haven demand we saw in late 2025 pushed gold prices higher, and that trend continues. Gold is trading around $2,450, indicating that investors still seek safety. Buying call options or call spreads on gold futures or ETFs is a straightforward way to prepare for continued geopolitical uncertainty. Equity markets are sensitive to trade discussions, which keeps volatility high. The VIX index has been around 19, reflecting ongoing investor anxiety, much higher than during calmer times. Traders might consider strategies that benefit from price fluctuations, such as buying straddles on major indices like the SPX. Create your live VT Markets account and start trading now.

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