Forex: Upswing of USD/CAD ceased by mixed Canadian CPI inflation

on Nov 22, 2013
Updated: Oct 21, 2019

**, Friday 22 November:**

In the run-up to the Canadian CPI report for October, the USD/CAD had risen to a 137-day high of 1.05683, with the rapid climb halted by higher-than-expected core consumer inflation.
The Canadian CPI y/y checked in at 0.7 percent, falling short of analysts’ estimates for 0.9 percent and September’s 1.1 percent. However, the Core CPI print m/m beat the market consensus for a flat reading with a solid rise of 0.2 percent, identical to September’s increase. Thus, the annual core inflation, which strips out the most volatile components, stayed unchanged at 1.2 percent.

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While the headline CPI fell below the Bank of Canada’s target of one to three percent, the Bank may not be that eager to ease as policymakers generally pay more attention to the core metric in order to look through temporary price shocks and to focus on the underlying trend.
According to the chief economist at the Bank of Montreal, Douglas Porter, “with GDP growth continuing to meander at around the 2 percent mark, and inflation pressures weak in much of the rest of the industrialized world, there’s little reason to believe that CPI will pick up meaningfully anytime soon.” In that environment, Porter believes there is little reason the BoC will even consider hiking rates anytime in 2014, in contrast to what the Organisation for Economic Co-operation and Development suggested earlier this week.

Also reported today, Canadian Retail Sales for September m/m exceeded market expectations for a modest gain of 0.3 percent, with actual growth of 1.0 percent, lifting year-over-year growth to its highest pace in a year and half at 3.6 percent. The reading for the prior month was lower on revision, down from a monthly rise of 0.2 percent to 0.1 percent.

However, auto sales led the advance, with a gain of 4.1 percent m/m in September. As a result, Canada’s Retail Sales ex the volatile auto transactions for September stayed flat m/m, as against the market consensus for growth of 0.2 percent.
Right now, the USD/CAD is trading around 1.0539, up 0.18 percent intraday.
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