Summary:
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Canada July CPI Y/Y +3.0% vs +2.5% expected
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Highest reading since 2011
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CAD rising across the board since the release
A blowout Canadian inflation print has seen a sharp move higher in the Canadian dollar in the past hour, with the currency rising across the board. Specifically the July CPI Y/Y increased by 3.0% vs 2.5% expected, with the prior reading also being 2.5%. This is the highest print for this metric since 2011 and is clearly a strong beat. This also means that headline CPI is now at the upper bound of the BOC’s inflation target and given the pace of the pick-up it could well force the bank to tighten policy further going forward. The next rate decision from the BOC is on the 5th September and while the markets still believe that they will keep rates on hold, according to derivatives markets the implied probability of a hike has risen to 33% from 23.% before the data. October appears to be the one where most are looking for a hike, with the odds according to the market now 80% compared to 73% beforehand.
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Canadian CPI is now probing the upper bound of the BOC’s inflation target at 3.0% after today’s release and this increase may well lead to the bank looking to tighten policy faster going forward. However, the core readings are not as high which could suggest the data isn’t as strong as ti first appears. Source: XTB Macrobond
As well as the headline release, it is often important to drill down and look more closely at some of the sub components with Canada providing 3 “core” measures. There wasn’t as positive improvement in these data points which may suggest that price pressures aren’t moving higher as quickly as the headline suggests. The reading were as follows:
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Common CPI Y/Y: +1.9% vs +1.9% prior
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Median CPI Y/Y: +2.0% vs 2.0% prior
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Trimmed CPI Y/Y: +2.1% vs +2.0% prior
The initial market reaction showed a swift spike in the Loonie, with USDCAD falling by almost 80 pips in the minutes following the release. Source: xStation
Longer term the market has once more respected resistance around 1.3175 and is now looking to retest the recent lows around 1.3050. The market could be seen to be trending lower with a series of lower lows and lower highs but it would take a break below 1.2970 before a sustained move can occur. Source: xStation
