USD/CAD Calm Ahead of Canadian CPI

12/22/2022

1 minute read

2022.12.22 00:46

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Kenny Fisher

has posted small gains on Wednesday and is trading at 1.3631 in the European session.

Canadian Dollar Eyes Inflation Report

Canada releases the November report later today. Investors will closely watch the inflation print, as the releases could signal what action the Bank of Canada takes next. At the BoC meeting earlier this month, the BoC raised rates by 50 basis points for a second straight time, which brought the cash rate to 4.25%. The bank’s rate statement said that inflation was “still too high” but noted that a drop in core inflation was a possible signal that price pressures were weakening.

Today’s report could show a mixed bag, leaving BoC policymakers scratching their heads about which way inflation is headed. Headline CPI is projected to drop to 6.7%, down from 6.9%, while a key core inflation gauge, BoC is expected to rise to 6.4%, up from 5.8%.

Inflation remains the BoC’s number one priority, and a soft reading will support the view that it is close to winding up its tightening cycle. Conversely, if CPI is higher than expected, it will mean that the BoC still has more work to do and will continue to tighten until there is evidence of inflation falling lower.

BoC Governor Macklem issued a mea culpa on Monday, saying that the BoC had badly miscalculated the rise in inflation and had to respond with steep tightening due to this “very big forecast error.” Macklem added that core inflation would decline in a “meaningful way’ in the spring.

Canada’s October rebounded on Tuesday. The headline reading jumped 1.4% m/m, up from -0.8% and above the consensus of -0.8%, its best showing in five months. rose 1.8%, after the -0.8% reading last month and above the consensus of 0.8%. The forecast for November is bleaker, with headline retail sales expected to come in at -0.5%.

USD/CAD Technical