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Canada's dollar just weakened to a two-week low against the US dollar, after milder inflation data and slumping oil prices kicked off speculation about a potential Bank of Canada rate cut.

What does this mean?

Inflation in Canada cooled to 1.7% in July, getting closer to the central bank's 2% target - partly thanks to easing gas prices. Core inflation tumbled too, sliding from 3.4% to 2.4% over three months. That's got markets betting there's now nearly a 40% chance of a rate cut at the Bank of Canada's next meeting, and even more relief may be on the table by October. The Canadian dollar's slide is also tied to a 1% drop in oil prices - a major export for Canada - as progress toward easing sanctions on Russian oil hints at greater global supply. Canadian bond yields dropped in response, with the 10-year government yield down to 3.45%. And even as Air Canada's strike settled, investors seem focused on the growing odds of softer monetary policy ahead.

Investors are reacting to the inflation cooldown by ramping up bets on a rate cut, pushing down both the loonie and government bond yields. The slide in oil prices is hitting the currency and energy stocks too, underscoring just how closely Canadian assets track commodity moves and policy signals.

The bigger picture: Canada's economy walks a tightrope.

Falling inflation is giving Canadian households a break and giving the central bank room to cut rates, but cheaper oil comes at a cost for such a resource-heavy economy. If sanctions on Russian oil are lifted and global supply expands, Canada could have to rethink how it navigates a shifting world energy market.