Talking Points:
- Headline CPI rose by 2.3% YoY in March, slightly below expectations at 2.4%
- Core inflation fell below the 2% target at 1.9%
- The Loonie is under pressure again this week falling as much as 0.67% against the dollar
- See the DailyFX Economic Calendar for upcoming economic data and for a schedule of live coverage see the DailyFX Webinar Calendar.
Energy and Transportation Kept Headline Inflation Above 2%
Earlier this week, the Bank of Canada (BoC) decided to hold the current overnight lending rate. And in their Monetary Policy Rate they forecasted that, “CPI inflation is anticipated to remain modestly above 2 per cent until the endof 2018. Temporary factors, namely elevated gasoline prices andthe impact of minimum wage increases, are expected to more than offsetthe fading effects of electricity price rebates and low food price inflation. Well sure enough, their forecast remains in line with the Consumer Price Index (CPI) reading at 2.3% in March. This was slightly below what markets were expecting at 2.4% but remains above the 2% target nevertheless. If we take a look at Statistics Canada’s CPI breakdown table we can see that energy costs are up 7.5% YoY while food prices have risen by a merely comparable 1.7% YoY last month. Also a big driver of the 2.3% print was transportation costs at 5.3% YoY. Hence, the BoC’s forecast, for now, is consistent with March inflation data.
Source: Statistics Canada
Core inflation, excluding food and energy, came in just below the 2% target at 1.9%.
The BoC’s Next Hike
By the tone of BoC on Wednesday the central bank monetary policy makers are more concerned with the uncertainties around trade and the North American Free Trade Agreement (NAFTA). The BoC may have a good feeling about the direction of inflation but remains skeptical with negotiations and tariff implications.
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Below is a list of economic releases that has pushed the Loonie lower:
- CAD Consumer Price Index (YoY) (MAR): 2.3% versus 2.4% expected, from 2.2% previous
-CAD Consumer Price Index Core (YoY) (MAR): 1.9% versus 2.0% expected, from 1.9% previous
Chart 1: USDCAD Index 15-minute Chart (April 9 - 20, 2018)
The week appears to be ending on a sour note for Loonie bulls. Similar to the reaction that we got on Wednesday following BoC, CPI has sent USDCAD soaring as much as 0.67%. Today’s rally erasing all USDCAD losses up until April 9th. At the time that this was written the Loonie traded at 1.2712.
--- Written by Dylan Jusino, DailyFX Research
