USD/CAD steady after Canada’s CPI slips to 2%

The Canadian dollar is showing limited movement on Tuesday. Early in the North American session, USD/CAD is trading at 1.3601 at the time of writing, up 0.10% today.

Canada’s CPI declines more than expected

Canada’s inflation rate dropped to 2% in August. This was down sharply from 2.5% in July and below the market estimate of 2.1%. Monthly, inflation declined by 0.2%, down from a 0.4% gain in July and shy of the market estimate of zero. The core rate declined to -0.1% down from 0.3% in July. Yearly, the average of two key core indicators eased to 2.35%, down from 2.55% in July.

The Bank of Canada has done a good job bringing down inflation and today achieved its target of 2%. The central bank has already cut rates three times as part of the new rate-cutting cycle in response to falling inflation and today’s CPI report lends support to further rate cuts. The battle with inflation is largely over and the BoC has shifted its primary focus away from inflation onto the labor market.

The August jobs report was a mix, as job growth rebounded with a 22.1 thousand gain in August after a decline of 2.8 thousand in July, which was within expectations. However, the unemployment rate rose to 6.5%, up from 6.4% and above the market estimate of 6.5%.

In the US, today’s retail sales report marked the final tier-1 event before the key Federal Reserve meeting on Wednesday. Retail sales lost steam in August but the drop wasn’t as bad as expected. Monthly, retail sales posted a small gain of 0.1% in August, down from a revised 1.1% in July but above the market estimate of -0.2%. On an annualized basis, retail sales eased to 2.1%, down from 2.9% in July and just below the forecast of 2.2%.

The retail sales release is not expected to impact the Federal Reserve decision on Wednesday. The rate cut odds for a half-point cut stand at 67% according to the CME’s FedWatch tool, unchanged by the retail sales release.

USD/CAD Technical

• USD/CAD is testing support at 1.3585. Below, there is support at 1.3547
• 1.3624 and 1.3662 are the next resistance lines

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