Canada\u2019s CPI rose 2.3% year on year in January, down from 2.4% in December and below the 2.4% forecast. Prices were flat month on month.<\/p>\n
The Bank of Canada core CPI rose 2.6% year on year and 0.2% month on month. Other BoC measures were 2.7% for Common (from 2.8%), 2.4% for Trimmed (from 2.7%), and 2.5% for Median (from 2.6%).<\/p>\n
Statistics Canada said gasoline was the main factor behind the slower headline rate. It also said the temporary GST\/HST break in January 2025 continued to affect year-on-year comparisons in January 2026, with restaurant meals most affected, plus alcoholic beverages, toys and children\u2019s clothing.<\/p>\n
After the release, USD\/CAD traded around 1.3650\u20131.3660. Earlier preview material had pointed to a 13:30 GMT release time and a March 18 BoC meeting, where rates were expected to stay at 2.25%.<\/p>\n
The preview also cited technical levels, including 1.3724, 1.3760, 1.3820, 1.3870 and 1.3928, with support at 1.3481 and 1.3418. It also listed RSI near 45 and ADX near 28.<\/p>\n
With the January inflation reading coming in at 2.3%, slightly cooler than the 2.4% we expected, the immediate pressure on the Bank of Canada has eased. This gives the Bank more flexibility ahead of its March 18 meeting, reinforcing the view that they will hold rates steady at 2.25%. For traders, this lessens the immediate threat of a hawkish surprise and points toward a weaker Canadian Dollar.<\/p>\n
The data suggests a strategy of selling short-term Canadian Dollar strength or buying dips in USD\/CAD will likely be effective. Although headline inflation is down, core measures remain sticky and well above the 2% target, which will prevent the Bank from signaling any immediate rate cuts. This dynamic supports a gradual upward grind for USD\/CAD rather than a sharp breakout, making it a favorable environment for selling out-of-the-money CAD call options.<\/p>\n
Looking at recent data, the divergence between the Canadian and U.S. economies is becoming more apparent. Last week\u2019s U.S. jobs report showed continued strength, with over 200,000 jobs added, while Canada’s own employment figures from early February showed the unemployment rate ticking up to 6.2%. This policy divergence, where the U.S. Federal Reserve remains on hold while the Bank of Canada may lean dovish, provides a strong tailwind for USD\/CAD in the coming weeks.<\/p>\n
We have seen in the past, particularly during the commodity surge in 2022 from our perspective in 2025, how a spike in oil prices can dramatically boost the CAD. However, with Western Canadian Select crude oil prices hovering in a stable range of $65-$70 per barrel, this major catalyst is currently absent. Without strong support from oil, the currency is more sensitive to interest rate differentials, which currently favor the U.S. Dollar.<\/p>\n
Given the upward bias for USD\/CAD, traders should consider strategies that profit from a measured ascent. Buying USD\/CAD call spreads, perhaps targeting the 1.3724 February high, allows for a bullish position with a defined risk. This approach captures potential upside as the market continues to price out the risk of a BoC rate hike, while protecting against any sudden reversals.<\/p>\n
The conflicting signals between the cooling headline inflation and the still-warm core measures will likely keep volatility in play around key data releases. This suggests that implied volatility in the options market may be undervalued ahead of the next Bank of Canada meeting. Traders could look at buying straddles or strangles if they believe the market is underestimating the potential for a move, regardless of the direction.<\/p>\n","protected":false},"excerpt":{"rendered":"
Canada\u2019s January CPI eased to 2.3% y\/y; core 2.6%. Gasoline, GST break effects; USD\/CAD ~1.3650.<\/p>\n","protected":false},"author":62,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42098","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42098","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=42098"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42098\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=42098"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=42098"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=42098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}