Canada is gearing up for the disclosure of its latest inflation figures, set to be unveiled by Statistics Canada on Tuesday. Forecasts suggest a 3.1% year-on-year increase in the Consumer Price Index (CPI) for March, surpassing February’s 2.8% rise, with projections indicating a 0.7% uptick compared to the previous month.
Alongside the CPI data, the Bank of Canada (BoC) will reveal its core CPI measure, excluding volatile components like food and energy expenses. February’s core CPI indicated a modest 0.1% monthly increase and a year-on-year uptick of 2.1%.
These figures hold significant weight, poised to influence both the short-term trajectory of the Canadian Dollar (CAD) and perspectives on the Bank of Canada’s monetary policy stance. Recent sessions have seen the CAD exhibiting weakness against the US Dollar (USD), hovering near five-month lows beyond the 1.3700 threshold.
Analysts anticipate sticky price pressures in March, with inflation projected to accelerate to 3.1% year-on-year, reflecting trends observed in Canada’s G10 counterparts, notably the US. Despite a general downward trend since August’s 4% inflation rate, recent rebounds suggest sustained inflationary pressures, potentially shaping the central bank‘s monetary policy decisions.
However, some analysts caution against placing undue reliance on historical precedent, underscoring the role of broader economic factors in driving recent price movements. Moreover, the advent of new US spot bitcoin exchange-traded funds (ETFs) and institutional investment has injected additional volatility into cryptocurrency markets, further complicating the inflation outlook.
Amidst these uncertainties, Governor Tiff Macklem emphasized the bank’s vigilance towards core inflation, citing fluctuations in gas prices and potential effects from US inflation data. While the bank anticipates a gradual decline in inflation towards its 2% target by 2025, sustained price pressures could prompt a reassessment of the bank’s current stance.
Analysts anticipate a potential rebound in headline CPI for March, buoyed by energy and food prices, which could diverge from the Bank of Canada’s desire for sustained deceleration. Such developments may impact USD/CAD dynamics, with significant increases in CAD volatility contingent on unexpected inflation outcomes.
As traders await the CPI release, the USD/CAD maintains a positive bias, with support at the 200-day Simple Moving Average (SMA) at 1.3515 and resistance at 1.3800. However, unexpected inflation figures could shift market sentiment, potentially amplifying CAD volatility and influencing the BoC’s future monetary policy decisions.
