Canadian inflation remains acceptably low – Commerzbank

Yesterday's Canadian inflation figures were broadly in line with expectations, with the only deviation being the non-seasonally adjusted month-on-month headline rate, which was slightly higher than expected, Commerzbank's FX analyst Michael Pfister notes.

CAD benefits from weaker USD

"However, this is not a cause for concern. Unlike in other Western countries, inflation in Canada has been under control for some time. After two months of declining prices, one month of higher price increases does not make a difference. The Bank of Canada (BoC) is therefore unlikely to be particularly concerned by the figures. Officials have recently emphasised on several occasions that US tariffs are likely to lead to price increases. However, as in the US, these effects are probably taking longer than expected to materialise."

"The CAD has recently tended to move sideways. USD/CAD falling by around 8 cents since this year's high point was mainly due to the enormous depreciation of the USD, rather than a pronounced CAD rally. Continued moderate inflation is likely to increase the likelihood of further interest rate cuts by the BoC in the coming months, thereby offsetting any slow improvements in the real economy. We therefore expect lower USD/CAD levels to continue to be primarily driven by USD weakness rather than CAD strength"