Canadian dollar edges lower as core inflation slides

The Canadian dollar has edged lower on Tuesday. USD/CAD is up 0.24%, trading at 1.3655 in the North American session at the time of writing.

Canada’s inflation rate sinks to 1.6%

Canada’s headline inflation continued to fall in April, dropping to 2.7% y/y, down from 2.9% in March and matching the market estimate. Monthly, the headline figure dropped to 0.5%, down from 0.6% in March and matching the market estimate. The decline in inflation was led by slower growth of food prices.

The big news was core CPI, which dropped sharply in April, falling to just 1.6% y/y. This was down from 2% in March and marked the lowest level in three years. Monthly,  core CPI dropped to 0.2%, down from 0.5% in March and below the market estimate of 0.4%.

The Bank of Canada, which meets on June 5th, will no doubt be pleased with the inflation release. The BoC has hinted that it is moving closer to a rate cut, but Bank policy makers want to see evidence that the downturn in inflation will remain sustainable and inflation will not rebound after a rate cut. The BoC is expected to start cutting rates at the June or July meetings.

The Federal Reserve continues to remains cautious about rate cuts. On Monday, Fed Vice Chair Philip Jefferson said that it was too early to tell if the downtrend in inflation would be “long lasting”. Fed Vice Chair of Supervision Michael Barr said that first-quarter inflation data was disappointing and was not supportive of easing monetary policy. For a second straight day, there are no US economic releases and we’ll hear from a host of FOMC members, which could provide insights about the Fed’s rate policy plans.

USD/CAD Technical

• USD/CAD pushed past resistance at 1.3631 and 1.3673 earlier. Above, there is resistance at 1,3733
• 1.3571 and 1.3529 are providing support

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