Euro falls as higher Oil prices support Canadian Dollar amid mixed inflation data

The Euro weakened against the Canadian Dollar on Monday, falling to around 1.6060 as higher oil prices bolstered the Canadian currency. The Canadian Dollar gained strength due to a sharp increase in oil prices, while recent inflation data had little impact on the short-term monetary policy outlook. Canada's Consumer Price Index (CPI) rose 3% year-over-year in August, unchanged from July, and in line with expectations.

However, the monthly data showed a decline of 0.1% compared to market expectations, following a 0.5% increase in July. The Bank of Canada's core inflation measure increased to 2.4% year-over-year from 2.3% previously. Key measures of underlying inflation remained relatively contained, with consumer price indices easing to 2.6%, 1.9%, and 2% respectively.

The mixed figures are unlikely to significantly alter the Bank of Canada's policy outlook, as the central bank maintained its policy rate at 2.25% during its latest meeting. The Bank of Canada recently noted that headline inflation has been around 3% due to persistently high gasoline prices, while indicating little evidence of these increases spreading to other components of inflation.

RBC economists stated that Canadian inflation "held at 3% year-over-year in August, unchanged from July," with "underlying inflation pressures" remaining comparatively contained. They further cautioned that the risk of greater second-round inflation from elevated energy costs would increase as oil prices remain elevated, making the breadth and persistence of underlying price pressures more crucial than month-to-month movements in headline inflation.