The Canadian dollar is slightly lower on Tuesday. In the North American session, USD/CAD is trading at 1.3687, up 0.17%.
Canada’s CPI continues to ease
Canada’s headline inflation fell to 5.2% y/y in February, down from 5.9% y/y in January and beating the consensus estimate of 5.4%. This was the largest deceleration since April 2020 and the lowest inflation rate since January 2021. This is clearly good news, but it’s still premature for the Bank of Canada to pat itself on the bank for a job well done. Food prices continue to outpace overall inflation and jumped 10.6% y/y, a grim reminder that consumers are feeling the price pain every time they go to the supermarket. Core inflation remains sticky, with the three core rate measures coming in at 5.3%, slightly better than the 5.5% gain in January.
The Bank of Canada left rates unchanged at 4.5% at its meeting earlier this month, the first time it has paused during the current rate-tightening cycle which began last year. Governor Macklem has made clear that the Bank will remain in pause mode only if the data supports such a move, and today’s inflation data appears to support another pause at the April 8th meeting.
The BoC was one of six major central banks to announce on the weekend that they would coordinate to boost US dollar liquidity in order to head off further contagion of the global banking system. The financial markets were in a near-panic last week as three US banks collapsed and Swiss banking giant Credit Suisse had to be rescued by UBS in an emergency merger. The BoC had telegraphed today’s rate pause well in advance and there really wasn’t any uncertainty ahead of the decision. Still, like other central banks, the BoC will have to tread carefully with its rate path in the current unstable financial environment.
- 1.3648 was tested in support earlier in the North American session. 1.3567 is the next support line
- 1.3732 and 1.3813 are the next resistance lines