USD/CAD – Loonie takes flight after inflation data

Data from Stats Canada showed Canada’s annual inflation rate climbed in May, driven by steep price increases for fresh vegetables and autos.

Canada’s consumer-price index increased +2.4% on a year-over-year basis in May, an increase from a +2% rise in the previous month.

Market expectations were for a +2.2% rise in May and on a month-over-month basis, inflation rose +0.4%.

Loonie takes flight after inflation data

CAD is trading at the intraday highs after this morning’s inflation print – C$1.3345 up +0.24% from C$1.3381 just ahead of the release.

What’s the BoC to do?

The strong inflation report is unlikely to influence Bank of Canada (BoC) to change course any time soon. Governor Poloz and his fellow policy makers, to date, have put on hold any further rate rises, due largely to risks in the global trading environment and lacklustre business investment.

Nevertheless, last month’s inflation report, coupled with continued strong domestic jobs growth and a recent recovery in housing, should quieten most the rate cut ‘doves’ out there.

Note: The BoC kept its main interest rate unchanged in May at +1.75%, and in its decision said it “expected headline inflation to remain around +2% in the coming months.”

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