• USD/CAD drops sharply below 1.4000 as Canadian inflation grew faster than expected in October.
• Higher-than-expected US inflation data might weigh on BoC large rate cuts prospects for December.
• The US Dollar falls back despite dismal market sentiment amid geopolitical tensions.

The USD/CAD pair falls sharply after the release of the hotter-than-expected Canadian Consumer Price Index (CPI) report for October. The CPI report showed that the headline inflation accelerated to 2%, faster than expectations of 1.9% and from 1.6% in September on year. Month-on-month headline inflation rose by 0.4%, the same pace at which price pressures decelerated in the previous month. Economists expected the monthly headline CPI to grow by 0.3%.

Faster-than-expected growth in inflationary pressures would weigh on market expectations for a second consecutive larger-than-usual interest rate cut of 50 basis points (bps) by the Bank of Canada (BoC) in the December meeting. However, the BoC might continue its policy-easing spell as the central bank is worried about a higher jobless rate. Canada’s Unemployment Rate was recorded at 6.5% in October, much higher than what is needed to maintain a full employment environment.

Meanwhile, dismal market sentiment due to a fresh escalation in the Russia-Ukraine war has strengthened the appeal of safe-haven assets. S&P 500 futures have posted significant losses in the North American session.