Canada's CPI expected to rise

The Canadian dollar is quiet on Tuesday, after posting gains of around 1% over the past two trading days. In the European session, USD/CAD is trading at 1.4277, down 0.08% on the day.

Canada's inflation rate is expected to have risen to 2.1% y/y in Feburary, up from 1.9% in January. Inflation has remained at or below the Bank of Canada's 2% target for six straight months, but that could change with today's inflation rate. Still, a reading just above 2% won't ruffle any feathers at the central bank. The average of the BoC core measures of the median and trimmed rates are expected to tick up to 2.75%, up from 2.7% in January.

The BoC has inflation right where it wants but there are dark clouds on the horizon. The US has slapped tariffs on Canada, which has retaliated with counter-tariffs. Governor Macklem has warned that the trade war with the US is a "new crisis" that will boost inflation. The BoC would like to continue trimming rates but a protracted trade war would complicate the central bank's rate path. The BoC lowered rates by a quarter-point last week and meets next on April 16.

In the US, retail sales for February posted a weak gain of 0.2% m/m, rebounding from -1.6% in January but shy of the market estimate of 0.6%. Consumers are feeling pessimistic about the economy slowing down and rising inflation. The Trump administration's tariff policy, which threatens to escalate into a global trade war, is a significant concern for consumers.