Canadian Dollar Holds Ground as Inflation Data Signals Policy Pause

The Canadian Dollar demonstrated resilience on Monday despite softer-than-expected inflation readings, with USD/CAD hovering near 1.3761 after bouncing from an intraday low of 1.3747. Market participants are recalibrating expectations following Canada’s latest Consumer Price Index report, which reveals headline inflation at 2.2% year-over-year—matching October’s pace but undercutting the forecasted 2.4%.

Inflation Data Supports Hawkish Hold

Statistics Canada’s inflation report delivered mixed signals to currency traders. The month-over-month headline CPI expansion decelerated to 0.1% from October’s 0.2%, suggesting price pressures are gradually subsiding. Meanwhile, the Bank of Canada’s core inflation gauge—the central bank’s preferred metric—remained anchored at 2.9% annually, though the monthly reading contracted 0.1%, reversing sharply from a prior-month surge of 0.6%.

This convergence of inflation toward the BoC’s 2% target provides justification for the central bank’s recent decision to maintain interest rates at their current level. Bank officials underscored that the existing policy stance remains “appropriately calibrated,” citing stable inflation dynamics and persistent economic resilience.

US Economic Momentum Stalls

On the American side, manufacturing sentiment deteriorated significantly. The Empire State Manufacturing Index plummeted to -3.9 in December, down sharply from November’s 18.7 and missing consensus estimates of 10.6 by a considerable margin. This deterioration in manufacturing activity added headwinds to the Greenback’s broader weakness across foreign exchange markets.

The coming week will prove critical for USD valuations, with two major releases scheduled: the delayed Nonfarm Payroll figures arrive Tuesday, while the Consumer Price Index drops Thursday. These data points will likely recalibrate Federal Reserve expectations heading into 2026.

Multi-Currency Dynamics: USD Weakness Across the Board

The US Dollar’s performance against major currencies reveals a mixed picture. USD strengthened marginally against the Australian Dollar, though the movement remains modest at 0.01% appreciation. When examining broader currency pairs such as USD to AUD dynamics within a wider foreign exchange context, the Greenback’s position appears precarious against most G10 counterparts. The New Zealand Dollar emerged as the strongest performer relative to the US currency today.

The currency heat map illustrates USD weakness most acutely against the Japanese Yen (down 0.59%), while the pound and euro registered declines of 0.19% and 0.12% respectively. The Canadian Dollar, despite softer inflation data, pared only 0.01% against the US currency, suggesting the CPI miss did not trigger a dramatic repricing of BoC rate expectations.

This resilience in CAD reflects market participants’ understanding that moderating inflation remains aligned with the central bank’s medium-term objective, requiring no immediate policy reversal. Meanwhile, mounting weakness in US manufacturing alongside persistent macroeconomic uncertainty continues to weigh on broad dollar sentiment across the FX landscape.