Canadian Dollar Surges as US Inflation Data Falls Short

The Canadian dollar gained strength as US inflation data came in lower than expected. The Personal Consumption Expenditures (PCE) Price Index, which is closely watched by the Federal Reserve (Fed), remained steady at 3% year-over-year in August, below the forecast of 3.3%. This softer-than-expected inflation figure adds to stronger economic data.

The US private sector added 90K jobs in September, exceeding expectations for a 70K increase. Annualized Gross Domestic Product (GDP) growth for the second quarter was revised higher to 2.2%, from a previous estimate of 1.5%. The revision means that economic growth accelerated.

Markets now assign around a 37% chance to a rate increase in October, down from nearly 51% on Tuesday and 71% a week earlier. However, investors are not abandoning expectations for further monetary tightening. Instead, they are shifting those expectations toward the end of the year. The chance of a rate hike in December now stands at 57.5%, up from 49.4% a day earlier.