Summary of Canadian CPI Easing and USD/CAD Gains

On February 17, 2026, Zain Vawda reported that Canada's annual inflation rate decreased to 2.3% in January 2026, slightly below expectations and in line with the Bank of Canada's (BoC) forecasts. This decline follows a three-month high of 2.4% in December 2025. The trimmed-mean core rate, a crucial indicator of underlying price pressures, also fell to 2.4%, marking its lowest level since April 2021.

Key Drivers of Inflation Changes

The easing of the overall inflation rate was primarily influenced by a significant drop in transportation costs, which saw deflation of -17% due to a nearly 17% decrease in gasoline prices. Additionally, cost pressures in the shelter sector moderated to 1.7%, and household operations and furnishings dropped to 2.5%.

Conversely, food prices surged by 7.3%, largely attributed to the expiration of previous tax breaks, while restaurant prices experienced a notable increase of 12.3%.

Implications for the Bank of Canada

The latest inflation data suggests that the BoC is likely to maintain its current interest rate of 2.25% during its next meeting on March 18, 2026. The alignment of the inflation results with the BoC's forecast provides the central bank with the flexibility to hold rates steady without immediate pressure to increase them in response to inflation spikes.

The drop in the trimmed-mean core rate is viewed positively, indicating that once the temporary spikes in food and restaurant prices subside, underlying inflation remains well-contained.

Technical Outlook for USD/CAD

From a technical perspective, the USD/CAD currency pair has shown signs of advancing, supported by a resurgence in the US Dollar. The immediate resistance levels are identified at 1.3700, followed by 1.3750 and the 200-day moving average at 1.3817. A decline in the pair would need to break through the support level at 1.3500 before further downside can be anticipated.

Overall, the article highlights the current state of inflation in Canada, its implications for monetary policy, and the technical outlook for the USD/CAD currency pair.