USD/CAD lower after Cad. CPI rises to 2%

The Canadian dollar is higher on Tuesday. In the North American session, USD/CAD is trading at 1.3975 at the time of writing, down 0.29% on the day.

Canadian inflation hits 2%, higher than expected

Canada’s inflation rate rose to 2% y/y in October, higher than the 1.6% gain in September, which was a three-year low. This was above the market estimate of 1.9%. The increase was largely driven by a smaller drop in gasoline prices compared to September. Monthly, inflation rose 0.4%, after a 0.4% decline in September and higher than the market estimate of 0.3%.

Core inflation, which excludes energy and food, also moved higher in October. The two key core indicators climbed to an average of 2.55% y/y, up from 2.35% in September. Services inflation, which has been a headache for the Bank of Canada, eased to 3.6%, its lowest level since January 2022.

How will the Bank of Canada respond to the inflation report? Today’s inflation report takes on added significance as it is the last inflation release before the BoC’s next rate decision on Dec. 11, the last one of the year.

The BoC has shown that it can be aggressive as it chopped rates by 50 basis points in October. The slightly-hotter-than expected inflation release has made another 50-bp cut at the December meeting less likely. The BoC appears intent to continue cutting rates as long as there are no surprises from inflation or the labor market and the markets have priced in about a 60% chance of a 25-bp cut at the next meeting.

USD/CAD Technical

• USD/CAD has pushed below support at 1.4004 and is testing support at 1.3978
• There is resistance at 1.4033 and 1.4059

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