The Canadian dollar extended its early rally against its key counterparts in the European session on Friday, following the release of a data showing higher than expected annual inflation rate in Canada, which puts pressure on the Bank of Canada to raise borrowing costs in the coming months.

Data from Statistics Canada showed that inflation rose 0.2 percent on a seasonally adjusted monthly basis in February, compared to a 0.5 percent increase in January.

On year, inflation rose 2.2 percent in February, following a 1.7 percent increase in January. The rate was forecast to grow by 1.9 percent.

Separate data showed that Canadian retail sales increased 0.3 percent in January to C$49.9 billion. General merchandise stores were the largest contributors to the increase.

This follows a revised 0.7 percent drop in December and was lower than 1.1 percent growth seen by economists.

Core retail sales, excluding autos, grew 0.9 percent on a monthly basis.

Economists had been looking for a 0.8 percent rise. The December figure was revised to a 1.7 percent fall.

The loonie showed mixed trading against its major rivals in the Asian session. While it held steady against the euro and the aussie, it rose against the greenback. Against the yen, it dropped.

The loonie advanced to 1.2835 against the greenback, from a low of 1.2940 seen at 5:00 pm ET. The loonie is seen finding resistance around the 1.26 level.

Data from the Commerce Department showed that U.S. durable goods orders surged up much more than anticipated in the month of February.

The report said durable goods orders jumped by 3.1 percent in February after slumping by 3.5 percent in January. Economists had expected durable goods orders to increase by 1.5 percent.

The loonie spiked up to more than a 3-week high of 0.9921 against the aussie and a 10-day high of 1.5836 against the euro, reversing from its early low of 0.9983 and a 2-day low of 1.5963, respectively. On the upside, 0.98 and 1.55 are likely seen as the next resistance levels for the loonie against the aussie and the euro, respectively.

The loonie rebounded to 81.97 against the yen, from a 4-day low of 80.91 seen at 6:45 pm ET. The next possible resistance for the loonie is seen around the 83.00 level.

Data from the Ministry of Internal Affairs and Communications showed that Japan's consumer prices rose 1.5 percent on year in February.

That was in line with expectations and up from 1.4 percent in January.

Looking ahead, U.S. new home sales data for February is scheduled for release shortly.

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