Canada's core inflation rises again.

The Canadian dollar has continued to strengthen over the past week as robust inflation data may prompt the Bank of Canada (BoC) to delay rate cuts. Core inflation climbed to 2.6%, accompanied by other strong economic indicators such as lower-than-expected unemployment and solid PMI figures in both manufacturing and services sectors. These factors further reduce the likelihood of near-term rate cuts. However, the rapid appreciation of the US dollar, supported by expectations that the Federal Reserve may slow its rate cuts and concerns over US import sanctions, could directly impact Canada’s export performance.

Canada’s unemployment rate remained at 6.5% in October, unchanged from the previous month and slightly below market expectations. This indicates that businesses are managing rising labor costs effectively, particularly in the latter half of the year. Unemployment rose by only 900 individuals to a total of 1,429,000, while net employment increased by 14,500 to 20,596,900, driven mainly by full-time jobs for youth under 24 years old, with over 20,800 fewer unemployed in this demographic. Construction and other goods-related services saw the largest job gains, while manufacturing employment saw only a slight increase.

Foreign investors increased their holdings in Canadian securities by a net $29.3 billion in September, marking the seventh consecutive month of gains and surpassing market expectations of a $10 billion rise. Investments were spread across all asset classes, with the largest gains in debt securities, up $14.7 billion, mostly in government bonds, signaling confidence in domestic economic management. Equity investments also rose by $14.6 billion, offsetting a small decline in mutual fund investments.

Canada’s inflation rate surged to 2% in October, up from a three-year low of 1.6% in the previous month and above market forecasts of 1.9%. While headline inflation remains within the Bank of Canada’s target for the third straight month, the rise was primarily driven by gasoline price effects, which dropped over 4% year-on-year and more than 10.7% in September. However, core inflation, excluding volatile food and energy prices, rebounded to 2.6%, adding pressure on the BoC and likely delaying potential rate cuts.

The yield on Canada’s 10-year government bond remained steady at 3.28%, even as US Treasury yields fell by 7 basis points following unexpectedly strong inflation data. Meanwhile, US Treasury yields declined after Russian President Putin provided further clarifications, increasing openness to the potential use of nuclear weapons.