In the Asian session on Wednesday (March 22), the USD/CAD fell to 1.3707, a drop of 0.04%. Andrew Kelvin, chief Canada strategist at TD Securities, said he thinks the Bank of Canada is probably happy to see the February inflation data, which was completely in line with market expectations and was a very modest downside surprise. The market can see that the core inflation rate has declined by an average of about 0.2% year-on-year.
Importantly, this also made headline inflation in the first quarter lower than the central bank‘s January forecast. That made it easier for the central bank to leave rates unchanged. Ultimately, though, there is more work to be done if the central bank is to keep rates at 4.5%. But it is certainly a step towards the 2% inflation target.
Plus, he said, given some of the volatility in the financial sector, it’s all secondary. But with policy makers able to contain some financial risk contagion, the market is back in an environment focused solely on fundamentals, a CPI figure that is consistent with the central bank maintaining interest rates at 4.5% for all of 2023.
