Insights 
VT 
In September, Canada’s Consumer Price Index outperformed expectations by registering a monthly change of 0.1%, compared to the anticipated -0.1%. This shift indicates minor yet positive inflationary movement in the Canadian economy.
The FX market reveals various dynamics, such as the US Dollar and Euro exchange rate nearing 1.1600. Meanwhile, GBP/USD has slipped below 1.3400 amid higher demands for the Greenback and trade concerns that are slightly diminishing.
Gold Prices And Cryptocurrency Movement
Gold experienced a sharp reversal, reaching new multi-day lows at $4,120 per troy ounce owing to a robust US Dollar and market profit-taking. Bitcoin and major altcoins like Ethereum and Ripple have edged lower amidst economic uncertainties and geopolitical pressures.
There is relief over the global economy’s performance exceeding spring expectations despite US tariffs. Nonetheless, there are underlying concerns about significant changes occurring at an early stage in global economic dynamics. In the cryptocurrency space, Bitcoin treasuries have seen inflows plummet by 99%, reflecting a shift in corporate asset ownership trends.
The September inflation data for Canada has surprised us, coming in at a positive 0.1% instead of the expected decline. This upside shock suggests that underlying price pressures are stickier than the market had priced in. It forces us to reconsider the timeline for any potential rate cuts from the Bank of Canada.
This unexpected inflation reading puts a serious damper on the view that the Bank of Canada could begin easing policy early next year. We are now seeing derivatives markets quickly price out the probability of a first-quarter rate cut, with overnight index swaps showing the odds dropping below 20%. This is a sharp reversal from just a few weeks ago and reminds us of the stubborn inflation patterns we last dealt with back in 2022-2023.
Implications For Currency And Policy Strategies
For our currency positions, this makes the Canadian dollar more attractive, particularly against the greenback. We should consider strategies that benefit from a stronger loonie, such as buying CAD call options or selling out-of-the-money USD/CAD calls, targeting a move towards the 1.3400 level in the coming weeks. This view is further supported by the stability in WTI crude oil prices, which have consistently held above $85 a barrel this month.
The Bank of Canada’s policy rate is currently holding at 3.0%, and this data gives them every reason to maintain that stance through the winter. Last week’s labour market report from Statistics Canada, which showed the economy adding a solid 45,000 jobs, adds another layer of support for a hawkish hold. Therefore, interest rate futures should be positioned for a “higher for longer” scenario out of Ottawa.
