The Canadian dollar has experienced a rapid appreciation.

This appreciation of the Canadian dollar is expected to be driven by two major factors. Firstly, the Bank of Canada (BOC) has increased its policy interest rate by an additional 0.25%, bringing the current rate to 5%. This rate is considered reasonably high compared to the inflation rate within the country, which was recently announced to be 3.4%, down from 4.4% the previous month but still below the target.

Apart from the BOC's interest rate hike, the Consumer Price Index (CPI) of the United States has consistently decreased. The latest announcement shows an inflation rate of only 3%, which is lower than the anticipated 3.1%. Additionally, the Core CPI has also decreased, reaching 4.8%. The decreasing CPI and Core CPI in the United States suggest that the Federal Reserve (Fed) may raise interest rates less, leading to a depreciation of the U.S. dollar.

Looking at the yield on Canada's 10-year government bonds, it is found that the yield has decreased to below 3.5%. This is in line with the information revealing the decrease in U.S. inflation in June. However, the BOC has revised its growth projections for this year to a higher level and adjusted the timeline for achieving the inflation target by extending it for another 6 months until mid-2568.

The government sector of the central bank has indicated that stronger-than-expected consumption and a tight labor market continue to exert inflationary pressures for the service sector. Consequently, the bank has adjusted its forecasts to indicate that the delay in reaching the inflation target will take longer than previously anticipated. It is now projected to be around 3% in the next year before easing towards the 2% target in mid-2568.

ADP, a company that reports private sector employment in the United States, states that private sector hiring surged by 497,000 positions in June. This is considered the largest increase since February 2022, exceeding the polling estimate of 228,000 positions by a significant margin. Prior to this, private sector hiring had just increased by 267,000 positions in May. This report indicates that the U.S. labor market remains robust, despite the continuous increase in interest rates.

The U.S. Department of Labor reported that initial claims for unemployment benefits increased by 12,000 to reach 248,000. This number is higher than the polling estimate of 245,000. However, the number of people receiving unemployment benefits continuously decreased by 13,000 to a four-month low of 1.72 million. This suggests that the trend of layoffs is expanding more broadly rather than being concentrated solely in the technology sector.

Technical analysis data (5H)