nto fewer US dollars flowing into Canada, which can also weigh on the loonie. Markets quickly repriced the outlook: interest-rate swaps (contracts that reflect where traders think policy rates are headed) shifted to about 40 basis points of BoC tightening this year, down from 54 before the CPI release. Canadian government bond yields fell too, with the 10-year yield dropping to roughly 3.58%.
Why should I care?
For markets: Currency moves are back to looking like a rates story.
When traders price in fewer BoC hikes, Canada’s expected interest-rate edge versus the US can shrink. That can reduce the appeal of holding Canadian dollars just for the higher yield, making USD/CAD more sensitive to shifts in US Treasury yields and broad US dollar strength than to slower-moving domestic growth narratives.
For you: A softer loonie can keep some prices from feeling calmer.
Even if inflation is cooling, a weaker currency can make US-priced goods cost more in Canadian dollars. That effect tends to show up most clearly in categories with lots of imported inputs – think electronics – and in travel, where many costs are effectively set in US dollars.