CAD: Canadian Dollar Falls on CPI Data Release
The Canadian CPI Data for the month of April came at 2.7% it is lower than 2.9% printed in the March month. Monthly basis down to 0.50% in the April month from 0.60% printed in the last month. The Canadian Dollar down after the data reading printed. This printed lower CPI reading is positive for BoC to reduce the rates in the June month.2-3 rate cuts is possible before FED rate cut this year.
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The USD/CAD pair traded approximately 0.2% higher in the 1.3650s range immediately following the release of the Canadian Consumer Price Index (CPI) data for April on Tuesday during the US trading session. According to Statistics Canada, the CPI data indicated that prices increased by 0.5% on a monthly basis and 2.7% on a yearly basis, aligning with economists’ estimates.
The lower inflation rate suggested by the data is likely to influence the Bank of Canada (BoC) to consider cutting interest rates at its June meeting. This April CPI report follows March’s higher readings of 0.6% month-over-month and 2.9% year-over-year.
Market analysts predict that the Bank of Canada may cut interest rates two or even three times before the US Federal Reserve enacts its first rate cut, which would have significant implications for the USD/CAD exchange rate. Lower interest rates, or the anticipation thereof, tend to weaken the Canadian Dollar (CAD) and strengthen the USD/CAD pair, which indicates the number of Canadian Dollars that can be exchanged for one US Dollar (USD).
Additionally, a decline in crude oil prices is exerting downward pressure on the commodity-linked Canadian Dollar. As Canada is the leading exporter of oil to the United States, falling oil prices negatively impact the CAD, further supporting an increase in the USD/CAD exchange rate.
Conversely, the US Dollar is gaining support from remarks made by US Federal Reserve officials, who remain cautious about the timing of future interest rate cuts. These officials emphasize the importance of maintaining higher interest rates for a longer period to ensure inflation is on a consistent path to meeting its targets.
CAD: Canada’s Inflation Cools to 2.7%, Clearing Path for BoC June Rate Cut
The Canadian Consumer Price Index (CPI) data for April showed an annual inflation rate of 2.7%, down from 2.9% in March. On a monthly basis, the CPI increased by 0.5% in April, compared to a 0.6% rise in the previous month. Following the release of this data, the Canadian Dollar weakened.
GBPCAD is moving in Ascending channel and market has reached higher high area of the channel
The lower CPI reading is seen as a positive signal for the Bank of Canada (BoC) to reduce interest rates at its meeting in June. Analysts suggest that the BoC may implement two to three rate cuts before the US Federal Reserve makes any rate cuts this year.
Canada’s annual inflation rate slowed to 2.7% in April, with core inflation measures also easing, as reported by Statistics Canada on Tuesday. This development increases the likelihood that the Bank of Canada (BoC) will commence cutting interest rates in June.
Statistics Canada’s Consumer Price Index (CPI) release indicated that the deceleration was driven by slower growth in prices for food, services, and durable goods. However, rising gasoline prices moderated the slowdown, with gasoline prices up 6.1% in April compared to a 4.5% increase in March. Excluding gasoline, the CPI rose by 2.5% in April.
These results met analyst expectations, according to Reuters, leading money markets to increase the probability of a June rate cut to about 50%, up from 39% before the data was released.
“Today’s data should provide the all-clear on the inflation front that the Bank of Canada needed to start cutting interest rates in June,” wrote CIBC economist Andrew Grantham in a research note on Tuesday.
April’s CPI report is significant for the BoC as it is the last major data release before the central bank’s June 5 rate announcement. BoC Governor Tiff Macklem had stated last month that the bank needs to see sustained progress on inflation, especially core inflation.
“Since then, we have received two more months of data indicating tame underlying inflation, for a total of four in a row, leading us to forecast a first rate cut at the June meeting,” Grantham added.
In March, the CPI rose to 2.9%, but core inflation measures had cooled. These measures continued to ease in April, with the CPI-median falling from 2.9% in March to 2.6% in April, and the CPI-trim dropping from 3.2% in March to 2.9% in April.
Desjardins managing director and head of macro strategy Royce Mendes noted in a research note that Canadians are likely to see a “small dose of rate relief” in the coming weeks.
“With headline inflation decelerating to 2.7% in April from 2.9% in March and core measures moving in the right direction, Canadian central bankers should have the evidence needed to begin easing monetary policy,” Mendes wrote. “While the market remains somewhat hesitant to fully commit to a June rate cut, we see the latest inflation data as sufficient for the BoC to start a gradual easing cycle at its next policy announcement.”
The Bank of Canada has maintained its benchmark interest rate at 5% since June of last year. Although Governor Macklem mentioned last month that a June cut was “within the realm of possibilities,” the central bank needs assurance that the inflation slowdown is not temporary.
“The key question for the BoC is whether inflation has tamed sufficiently to start reducing the degree of restrictiveness,” wrote BMO chief economist Douglas Porter in a research note. “We believe the door is open for a BoC rate cut, and we have been leaning towards a June move for the past six months. However, it remains a close call, and when the Bank does move, it will be gradual, with a highly patient Fed acting as a limiter on how far and fast Canadian rates can fall.”
EURCAD has broken box pattern in upside
Dominique Lapointe, director of macro strategy for Manulife Investment Management, commented that the slowdown in inflation “cements the case for a June cut.” He noted, “Combined with an economy in oversupply, weak private sector employment gains, business investment intentions, and slower consumption, we believe this morning’s CPI data provides enough evidence for the BoC to cut rates starting in June.”
On a monthly basis, CPI increased by 0.5% in April, with a seasonally adjusted rise of 0.2%. Grocery prices led the CPI deceleration in April, with prices up 1.4%. Meat prices increased by 1.8%, dairy products by 1.2%, fresh fruit prices fell by 4.4%, while bakery product prices remained flat compared to last year.
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