Canadian Dollar Slips Ahead Of GDP

10/28/2022

1 minute read

2022.10.28 09:46

Kenny Fisher

The Canadian dollar is lower today. In the European session, is trading at 1.3617, up 0.39%.

Markets Eye Canada’s GDP

The week wraps up with Canada’s for August. The economy is expected to have expanded by 0.1%, which would be unchanged from July. The economy is likely heading into a recession, and Finance Minister Chrystia Freeland stated recently that the coming months would be a “challenging economic time.”

The government’s key priority is curbing high inflation, which has eased slightly. In September, fell to 6.9%, down from 7.0% in August. Still, this was higher than the consensus of 6.7%, as soaring food prices kept inflation from falling further. The good news is that inflation appears to have peaked from the June level of 8.1%, which marked a 40-year high. The bad news is that core inflation was unchanged at 5.3% in September, a sign that inflation remains sticky, despite the Bank of Canada’s aggressive rate-hiking cycle.

High inflation pushed the BoC to deliver another oversize rate on Wednesday, but the 0.50% hike was considered dovish, as the consensus stood at 0.75%. The cash rate is now at 3.75%, its highest level since 2008. Although inflation is far from being beaten, Canada’s economy is clearly slowing down as a result of the steep increase in rates, and the BoC is easing up on the rate pedal just a bit, in the hopes of guiding the economy to a soft landing and avoiding a recession. High rates are weighing on households and businesses and the BoC is concerned that further oversize rates may pose a risk to financial stability.

The US releases and data later today as well as the Fed’s preferred inflation indicator, the Price Index. The index is expected to rise to 5.2%, up from 4.9%, but I don’t expect today’s numbers to change the Fed’s plan to raise rates by 0.75% next week.