Canadian dollar extends losses as Canada’s inflation rises

Canadian dollar extends losses as Canada’s inflation rises
Toronto: The Canadian dollar is down for a fifth straight day and has slipped 1.9% during that time. In the North American session, USD/CAD is trading at 1.3840, up 0.37%.

Canada’s inflation rate for March rose to 2.9% y/y, ticking up from 2.8% in February and above the market forecast of 2.7%. A sharp rise in gasoline prices and shelter costs were the drivers behind the slight acceleration. At the same time, two key core rates eased lower. The trimmed mean dropped from 3.2% to 3.1%, below the market estimate of 3.2%, and median CPI dropped from 3% to 2.8%, shy of the market estimate of 3%.

The Bank of Canada is unlikely to be worried about the rise in headline inflation, as the core inflation measures are considered better gauges of inflation trends. The BoC has held rates at 5% for six straight times and is clearly not in a rush to chop rates until it is confident that price stability can be maintained around the target of 2%. The central bank has done a good job of reining in inflation but as is the case in the US, the final phase of getting inflation back down to 2% is proving difficult as the inflation path has been bumpy.

The BoC, which paused last week, doesn’t meet again until June 5. Today’s inflation release pushed market expectations of a rate cut in June slightly higher, from 44% to around 50%. The BoC will have additional data to digest in the weeks ahead of the June meeting and the strength of those numbers will be critical in the BoC’s next rate decision.

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