Inflation is quickly building an argument for the Bank of Canada to entertain the possibility of rate hikes in the near future – or at least defer any plans to lower the benchmark from its current 3.00 percent level. This data initiated a decline in USDCAD that eventually accelerated to a nearly 150-point drop with help from rising oil and a disappointing round of US data.
Canadian Consumer Price Index Impact
Inflation is quickly building an argument for the Bank of Canada to entertain the possibility of rate hikes in the near future – or at least defer any plans to lower the benchmark from its current 3.00 percent level. Statistic Canada reported the headline consumer price index grew 3.4 percent in the year through July. For some historical background, this was the most aggressive pace of price growth since early 2003. However, the impact this data may have had on the Canadian dollar was dampened by preconceived forecasts and the details of the data itself. The official consensus had already forecasted the rise to 3.4 percent, essentially robbing the event risk of its surprise factor. More importantly, the core figure unexpectedly held steady at 1.5 percent for the fourth consecutive month – below the central bank’s target level. Nonetheless, the Canadian currency would find some lift shortly after the release was absorbed by the market as the data echoed the BoC’s forecasts for inflation to hold through the foreseeable future and to peak at 4.3 percent through the first quarter of 2009. This data initiated a decline in USDCAD that eventually accelerated to a nearly 150-point drop with help from rising oil and a disappointing round of US data.
Canadian Consumer Price Index Outlook (Monday)
The release of Canadian inflation data for the month of July is likely to remind the markets that the Bank of Canada has been somewhat hawkish in their rhetoric lately. Indeed, the latest Monetary Policy Report Update in mid-July noted that while the US economic slowdown and instability in the financial markets had progressed “roughly in line with expectations”, the surge in commodity prices was much stronger than anticipated, altering “the outlook for global and domestic inflation.” On Thursday at 7:00 EDT, headline CPI is forecasted to rise to an annualized rate of 3.3 percent – the highest since March 2003 – while the Bank of Canada’s core measure is expected to edge up to a 8-month high of 1.6 percent. The Canadian dollar is likely to respond immediately, though the risks are greater for a strong CPI report to ignite a rally in the Loonie.
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