CAD Strengthens Amid Hotter-Than-Expected Inflation Data

The Canadian Dollar is gaining strength after Canada's Consumer Price Index (CPI) rose 3% YoY in July, exceeding market forecasts of 2.9%. This hotter-than-expected inflation data has provided additional support to the CAD.

Statistics Canada attributed the acceleration in headline inflation to higher prices for gasoline and travel tours, as well as the conflict in the Middle East and the blockade of the Strait of Hormuz, which placed upward pressure on fuel prices.

The Bank of Canada's (BoC) core CPI measure rose 2.3% YoY, up from 2.1%, while the monthly reading increased 0.2% following a 0.1% rise previously. Despite this, the BoC's preferred core measures held close to its 2% target, suggesting that the latest data are unlikely to change the central bank's near-term policy outlook.

The US Dollar (USD) stays on the back foot as traders dial back Federal Reserve (Fed) rate hike bets after recent US economic data pointed to weaker labour demand, softer consumer spending and easing inflation pressure. The CME FedWatch tool indicates a 70% probability that the Fed will leave rates unchanged next month.