The Bank of Canada's (BoC) business outlook survey on Monday indicated reduced optimism and increased competitive pressures affecting production growth. Despite a decrease in concerns about labor shortages, wage growth is expected to slow down. Businesses anticipate inflation rates to remain above the 2.0% target.
The heightened geopolitical situation involves reports of armed attacks by the Islamic Revolutionary Guard Corps (IRGC) targeting dissident gatherings near the northern Iranian border with Iraq in Erbil. This has led to a strengthening of the USD/CAD as investors reduce risk exposure.
Canada's Consumer Price Index (CPI) for December is expected to increase to 3.4% year-on-year. The upward trend in inflation may impact market confidence, economic growth prospects, and possibly necessitate the BoC to maintain interest rates for a while.