FX.co ★ Canadian Dollar Rebounds After CPI

The Canadian dollar has surged beyond 1.37 against the US dollar, as investors weigh the persistent domestic inflation against the recent softness of the US currency. In June, Canada’s trimmed-mean core Consumer Price Index (CPI)—the Bank of Canada’s (BoC) preferred indicator for core inflation—held steady at 3%. This stability reinforces the expectation that the BoC will maintain a hawkish approach and keep its overnight rate at 2.75%, rather than shifting prematurely toward a more accommodative policy. In terms of trade, while exports covered under the United States-Mexico-Canada Agreement (USMCA) remain sheltered from the existing 35% tariffs imposed on other trade partners, President Trump’s recent announcement of 30% tariffs on European Union and Mexican imports, slated to take effect on August 1st, has rekindled fears of a more extensive US tariff escalation. The possibility of Washington extending similar import measures beyond its USMCA exclusions has intensified concerns about a widening trade war. Meanwhile, weaker-than-anticipated US inflation and retail sales figures have further pressured the US dollar, thereby bolstering the Canadian dollar’s rise.