• USD/CAD rebounds modestly as the US Dollar stabilises after CPI-driven losses.
• Weaker US CPI strengthens the case for Fed rate cuts in 2026.
• Attention turns to upcoming data releases in Canada and the US on Friday.

The Canadian Dollar (CAD) pares some of its earlier gains against the US Dollar (USD) on Thursday as the Greenback stabilises after a brief bout of weakness following its initial reaction to softer-than-expected US inflation data. At the time of writing, USD/CAD trades around 1.3770, rebounding modestly from a daily low near 1.3756.

Data released by the US Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose 2.7% YoY in November, falling short of market expectations of 3.1% and easing from 3.0% in September. Core CPI, which excludes food and energy, also slowed to 2.6% YoY from 3.0%.

Despite the short-term rebound, the broader outlook remains tilted to the downside for USD/CAD, as US Dollar gains appear limited. Cooling inflation and signs of a softening labour market have strengthened the view that the Federal Reserve (Fed) has room to deliver additional interest rate cuts into 2026.

Markets are currently pricing in around two rate cuts next year. Even so, the Fed signalled a wait-and-see stance at last week’s Federal Open Market Committee (FOMC) meeting, with Chair Jerome Powell emphasising that the central bank is “well positioned to wait and see how the economy evolves.”

The broader monetary policy outlook also favours the Canadian Dollar, as the Fed appears set on a gradual easing path while the Bank of Canada (BoC) remains on hold. At its meeting last week, the BoC kept interest rates unchanged at 2.25% and said the current policy setting is “about the right level,” citing inflation close to target and signs of resilience in economic activity.

Attention now shifts to the upcoming economic releases on Friday. In Canada, markets will focus on Retail Sales data. In the United States, key releases include Existing Home Sales, the University of Michigan Consumer Sentiment and Consumer Expectations indices, along with the one-year and five-year inflation expectations surveys.