Canadian Dollar is little changed in early US trade, reflecting a broadly balanced market backdrop. The latest inflation figures offered reassurance rather than surprise, keeping the Loonie anchored as investors focus on broader risk and geopolitical developments.
Canada’s CPI remained steady at 2.2% close to BoC’s 2% target. The absence of renewed price acceleration is welcome, strengthening the case that policy easing is essentially complete and that rates are appropriately calibrated.
While core inflation measures remain elevated, their gradual cooling trend supports expectations that underlying pressures are easing. If tariff impacts continue to settle and inflation softens further, the environment could allow growth to firm modestly in early 2026 without forcing the BoC back into action.
Meanwhile, Risk sentiment firmed slightly in Europe after Asian markets were rattled by weak China data. Markets reacted to a major diplomatic shift after Ukrainian President Volodymyr Zelenskyy signaled willingness to abandon Ukraine’s NATO ambitions in exchange for alternative security guarantees, a development that weighed heavily on European defense stocks.
Beyond defense, however, equity markets proved resilient. European indexes are posting mild gains. US stocks also opened higher, led by recovery in technology shares. Still, with US non-farm payrolls due tomorrow, investors appear reluctant to extend positions aggressively.
Across FX, Yen continues to lead despite giving back part of its earlier rally, followed by Sterling and Euro. Kiwi underperforms, with Aussie and Swiss Franc also lagging. Dollar and Loonie sit near the center of the board, consistent with a mixed risk tone rather than a clear directional move.
In Europe, at the time of writing, FTSE is up 0.95%. DAX is up 0.34%. CAC is up 0.97%. UK 10-year yield is down -0.036 at 4.499. Germany 10-year yield is down -0.017 at 2.845. Earlier in Asia, Nikkei fell -1.31%. Hong Kong HSI fell -1.34%. China Shanghai SSE fell -0.55%. Singapore Strait Times rose 0.06%. Japan 10-year JGB yield rose 0.004 to 1.959.
Canada CPI unchanged at 2.2% in November, services inflation cools
Canada’s inflation data came in softer than expected in November. Headline CPI was unchanged at 2.2% yoy, undershooting expectations for an uptick to 2.4% and suggesting inflation remains comfortably contained near target.
The moderation was led by services inflation, which slowed to 2.8% yoy from 3.2% in October. That deceleration more than offset firmer goods prices, where grocery inflation accelerated sharply to 4.7% from 3.4%, the strongest pace since December 2023.
Gasoline prices also fell at a slower annual pace, declining -7.8% yoy compared with a -9.4% drop previously. Stripping out gasoline, CPI rose 2.6% year over year for a third consecutive month, pointing to stability rather than renewed inflation momentum.
Core measures reinforced that message. CPI Median slowed to 2.8% from 3.0%, while CPI Trim eased to 2.8% from 2.9%, both coming in below expectations. CPI Common edged up slightly to 2.8%, matching forecasts.
Eurozone industrial production rises 0.8% mom in October, beats expectations on broad-based gains
Eurozone industrial production delivered a modest upside surprise in October, rising 0.8% mom and beating expectations for a 0.7% increase.
The gains in the Eurozone were broad-based across sectors. Output of energy rose 1.1% mom, capital goods increased 0.5%, and intermediate goods edged up 0.3%. Consumer-related categories were firmer, with durable consumer goods jumping 2.0% and non-durable goods rising 1.2%, suggesting some resilience in downstream demand.
Across the wider EU, industrial production increased 0.3% mom, masking sharp country-level divergences. Ireland (4.0%), Luxembourg (3.6%), and Croatia (3.1%)posted the strongest gains, while Sweden (-6.5%), Belgium (-3.4%), and Denmark (-3.2%) recorded steep declines.
SECO upgrades 2026 GDP forecast, downgrades inflation
Swiss economic prospects have improved modestly, with the Federal Government Expert Group on Business Cycles revising up its 2026 growth forecast. GDP adjusted for sporting events is now seen expanding 1.1%, up from 0.9% projected in October, bringing the outlook broadly back in line with June forecasts when US tariffs stood at 10%. The reduction in US tariffs has improved conditions for exposed sectors and eased pressure on foreign trade.
Foreign demand is expected to provide a positive, though still “moderate”, contribution next year. Domestic demand, however, remains the “main driver of growth”, supported by resilient consumption and a gradual pickup in investment as capacity utilization improves. SECO expects investment activity to strengthen slightly as firms respond to firmer underlying demand.
Low inflation remains a key support. Consumer prices are forecast to rise just 0.2% in both 2025 and 2026 (down from 0.5%0, helping preserve real incomes and underpin solid private consumption.
Looking further ahead, growth is expected to normalize at 1.7% in 2027 as global conditions improve, though the outlook assumes tariffs remain at current levels and uncertainty around trade policy remains elevated.
Japan Tankan: Manufacturing sentiment improves as firms absorb tariff impact
Japan’s Q4 Tankan survey delivered a broadly supportive signal for the economy, reinforcing expectations that the BoJ will proceed with rate normalization. The large manufacturing index rose from 14 to 15, in line with expectations, marking a third consecutive quarterly improvement and the strongest reading since December 2021. The result suggests manufacturers have so far weathered the impact from higher U.S. tariffs better than feared.
Sentiment among non-manufacturers was less impressive, with the index unchanged at 34, falling short of expectations for a modest uptick. Even so, the divergence does not point to a meaningful deterioration in overall conditions, as services confidence remains elevated relative to historical norms.
Capital spending intentions added to the constructive tone. Large firms now plan to increase investment by 12.6% in the current fiscal year ending March 2026, slightly above market expectations of 12.0%.
The survey also indicated firms expect inflation to average 2.4% across one-, three-, and five-year horizons, suggesting expectations are stabilizing around the BoJ’s 2% target.
With tariff uncertainty easing and manufacturing sentiment holding firm, the survey supports the dominant market view that BoJ is positioned to raise rates in December, even as the pace of tightening beyond that remains gradual.
China data disappoints as consumption and investment weaken further
China’s November activity data delivered a broadly weaker-than-expected picture. Industrial production rose 4.8% yoy, missing expectations for 5.0% growth and marking the weakest pace since August 2024.
The sharper disappointment came from consumption. Retail sales rose just 1.3% yoy, far below expectations of 2.9% and slowing markedly from October’s 2.9% pace. It was also the weakest reading since December 2022.
Investment conditions also deteriorated. Year-to-date fixed asset investment fell -2.6%, deeper than expected -2.3% and the sharpest contraction since the pandemic in 2020. The drag from property intensified, with real estate investment down -15.9% in the first eleven months of the year, extending the slump seen earlier and reinforcing the view that the property sector remains a central constraint on China’s recovery.
RBNZ’s Breman sees OCR holding at 2.25% if outlook unfolds as expected
RBNZ Governor Anna Breman signaled in media interviews today that the bar for further near-term easing remains high. While the forward path published in the November Monetary Policy Statement allows for a small probability of another rate cut, Breman stressed “if economic conditions evolve as expected the OCR is likely to remain at its current level of 2.25 per cent for some time.”
Looking ahead to the next OCR decision in February, Breman said the central bank will continue to assess incoming data, financial conditions, and global developments, with a particular focus on implications for New Zealand’s economic outlook and its medium-term inflation objective.
Breman also reiterated that monetary policy is not on a preset course, highlighting the MPC’s regular meeting schedule as a reflection of that flexibility.
NZ BNZ service falls to 46.9, recovery hopes dented
New Zealand’s services sector slipped deeper into contraction in November, reinforcing signs that domestic demand remains fragile. BusinessNZ Performance of Services Index fell from 48.4 to 46.9, marking the lowest level of activity since May and sitting well below the survey’s long-run average of 52.8. All five sub-indices remained in contraction territory, underlining the broad-based nature of the slowdown.
Activity and sales saw the sharpest deterioration, dropping from 48.4 to 45.8, while employment also weakened from 48.6 to 46.4. New orders edged marginally higher from 49.2 to 49.3, offering little evidence of an imminent turnaround in demand.
BusinessNZ Chief Executive Katherine Rich said the November reading “put to bed” any immediate hope that the sector was moving toward expansion. While the proportion of negative comments eased slightly from recent months, businesses continued to cite a weak economic backdrop, low consumer confidence, high living costs, inflation, interest rates, and reduced spending as the dominant constraints on activity.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.3752; (P) 1.3773; (R1) 1.3793; More…
USD/CAD continues to lose downside momentum as seen in 4H MACD, but there is no clear sign of bottoming yet. Further decline remains in favor, and sustained trading below 61.8% retracement of 1.3538 to 1.4139 at 1.3768 will argue that whole fall form 1.4791 might be ready to resume. Retest of 1.3538 low should be seen next. On the upside, however, break of 1.3870 resistance will indicate short term bottoming, and turn bias back to the upside for stronger rebound.
In the bigger picture, current development suggests that price actions from 1.4791 is developing into a deeper, larger scale correction. In the less bearish case, it’s just correcting the rise from 1.2005 (2021 low). But even so, break of 1.3538 will pave the way to 61.8% projection of 1.4791 to 1.3538 from 1.4139 at 1.3365. This will remain the favored case as long as 1.4139 resistance holds, in case of rebound.
