The Canadian dollar is calm on Tuesday. In the European session, USD/CAD is trading at 1.4194, up 0.08%.
Canada’s CPI expected to creep up to 1.9%
Canada releases the January inflation report later today and headline inflation is expected to edge higher to 1.9% from 1.8% in December, which was a three-month low. Headline inflation has remained at or below the 2% target for five consecutive months but that does not mean that inflation worries are over. The CPI trimmed mean, a key core inflation gauge is currently at 2.5% and is expected to tick up to 2% in January. The Bank of Canada has been lowering rates but is keeping an eye on underlying inflation and could pause cutting rates if inflation moves higher.
The inflation picture for January has been clouded by the government’s sales tax holiday which runs from Dec. 15-Feb. 15 and will include the full month of January. Statistics Canada has projected that headline inflation would have hit 2.2% in January without the tax holiday, although it will not affect core inflation.
The Bank of Canada cut rates on Jan. 29, noting that the economy was showing improvement and inflation remained around the 2% target. The BoC is expected to trim rates a bit further but uncertainty over US President Trump’s tariffs could complicate the BoC’s rate path. Trump imposed tariffs on Canada earlier this month, triggering retaliatory tariffs from Ottawa. The US has suspended the tariffs until March 3, and whether the tariffs are reinstated or not could impact the BoC’s decision at its meeting on March 12.
Federal Reserve Governor Christopher Waller said on Monday that inflation progress has been “uneven” and said he favored holding rates until inflation eased. If this year “plays out like 2024”, Waller said he would be open to further rate cuts later in the year.
USD/CAD Technical
- USD/CAD is putting pressure on resistance at 142.13. The next resistance line is 142.33
- There is support at 141.99 and 141.79
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