Canadian Inflation Cools, but USD/CAD Remains Sticky Around 1.3761

The Canadian Dollar faced headwinds Monday after Canada’s inflation report came in softer than expected, yet the pair USD/CAD maintained its grip above the 1.3761 level. For those tracking 9 Canadian dollars to USD, the current rate hovers around 10.18 US dollars, reflecting the recent stability in the currency pair despite the dovish inflation surprise.

The CPI Shock That Didn’t Move Much

Statistics Canada delivered a reality check on inflation expectations. The headline Consumer Price Index rose just 2.2% year-over-year in November—matching October’s pace but falling short of the anticipated 2.4%. The monthly print was even more underwhelming at 0.1%, down from 0.2% previously. This is the kind of data that normally sends the Canadian Dollar spiraling, but the market’s reaction remained muted.

The core inflation story proved more interesting. Core CPI held steady at 2.9% annually, though the monthly reading dropped sharply to -0.1%, reversing October’s 0.6% pop. The bottom line: inflation is cooling toward the Bank of Canada’s 2% target, which should theoretically support rate cuts. Yet USD/CAD showed little enthusiasm for Canadian assets.

Bank of Canada’s Comfortable Stance

Last week’s decision to hold rates steady at the BoC’s policy meeting now makes more sense. Policymakers signaled that the current interest rate setting is “about the right level,” citing inflation creeping toward target and modest economic resilience. Translation: no rush to cut rates aggressively. This defensive positioning explains why the weaker CPI data didn’t spark a sharper Canadian Dollar rally.

The Real Driver: US Economic Uncertainty

Meanwhile, the US economic calendar delivered its own surprise—and not the good kind. The Empire State Manufacturing Index for December collapsed to -3.9 from 18.7, smashing expectations of 10.6. This kind of deterioration signals manufacturing weakness heading into the new year, pressuring the US Dollar broadly.

Yet USD/CAD isn’t following the typical playbook. The pair’s resilience suggests traders are pricing in a more patient Federal Reserve for 2026, despite recent cooling in manufacturing activity.

What’s Coming This Week

The delayed October and November Nonfarm Payrolls (NFP) report drops Tuesday—a critical litmus test for labor market health. Thursday brings the US Consumer Price Index, which will further shape expectations around the Fed’s rate trajectory. These releases could spark meaningful USD/CAD volatility, especially if they signal a softer labor market or disinflation.

The Takeaway: USD/CAD’s steadiness near 1.3761 reflects competing forces: dovish Canadian inflation supporting the Loonie, but persistent US policy uncertainty bolstering the Greenback. Watch the week’s data closely—any surprise on the NFP or CPI front could shift the balance.