- Canada's consumer price index is expected to rise 3.3% year-on-year in December.
- The BoC has released its Business Outlook Survey (BOS).
- The Canadian dollar is at a four-week low against the US dollar.
Canada is scheduled to release important inflation-related data on Tuesday. Statistics Canada will release the consumer price index (CPI) for December, and the year-on-year rate of increase is expected to be 3.3%, slightly higher than November's 3.1%. On a monthly basis, the index is expected to decline by 0.3%, following a 0.1% rise in the previous month. Due to this data release, the Canadian dollar (CAD) will remain weak against the US dollar (USD), and the Canadian dollar (CAD), which is currently trading at a 4-week low near the 1.3400 zone, may fluctuate. There is.
In addition to CPI data, the Bank of Canada (BoC) also releases a core consumer price index. The index excludes volatile factors such as food and energy prices. BoC core CPI in November increased by 0.1% month-on-month and by 2.8% year-on-year. These numbers will be closely monitored as they could influence the direction of the Canadian dollar (CAD) and shape expectations for the Bank of Canada's monetary policy.
What can we expect from Canada's inflation rate?
Analysts expect price pressures to ease further across Canada in December. Inflation, as quantified by the annual change in the consumer price index, is projected to return to an upward trend in the final months of the year, similar to what happened in most of Canada's G10 countries and especially its neighbor the United States. While the CPI is on a downward trend following a rise to 4% in August, all inflation measures, such as the core CPI, are expected to moderate as well, although cost increases are more subdued, the Bank of Canada said. This shows that the target of 2% continues to be exceeded.
If forthcoming data confirms an expected loss of momentum in disinflationary pressures, investors may price in the possibility that the central bank will maintain current interest rates for a longer period of time than initially expected, although financial conditions may Additional tightening appears to be off the table.
Global debate has centered on the prospect of monetary authorities cutting interest rates in 2024, but an unexpected build-up of inflationary pressures has prompted central banks to continue restrictive measures at this point, rather than leaning toward further tightening. He will maintain his stance. The latter scenario would require a sharp and sustained resurgence of price pressures and a sudden emergence of consumer demand, all of which seem highly unlikely in the foreseeable future. .
In her final remarks of the year in December, central bank governor Tiff Macklem reported that the board would continue to discuss whether monetary policy is sufficiently restrictive and for how long it should remain so. He predicted growth and employment would show improvement in the second half of 2024, with inflation moving closer to the 2% target. Macklem acknowledged a slowdown in economic growth through mid-2023 and predicted it would continue into 2024. Macklem said it was too early to consider cutting interest rates and stressed that although inflation had fallen, it remained high.
When will Canadian CPI data be released and what impact could it have on USD/CAD?
Canada is scheduled to release its consumer price index for December 2023 on Tuesday at 13:30 pm Japan time. The potential impact on the Canadian dollar comes from changes in monetary policy expectations from the Bank of Canada. Still, the impact could be muted, as the Bank of Canada, like the Federal Reserve and other central banks, is expected to finish raising interest rates amid falling inflation and slowing economic growth.
USD/CAD started the new trading year quite bullish, but the uptrend appears to have hit a significant barrier around the 1.3450 zone. This early resistance area also appears to be supported by the proximity of the key 200-day simple moving average (SMA) around 1.3480.
“USD/CAD is likely to face the prospect of additional losses as long as it trades below its significant 200-day SMA,” said Pablo Piovano, senior analyst at FXStreet. . If the price sustainably breaks through the December low of 1.3177 (December 27th), the bearish trend will become stronger. ”
Pablo added: “A significant uptick in market activity for the Canadian dollar would require an alarming rate of inflation. A lower-than-expected number could mean the central bank could cut interest rates next month. A recovery in the CPI, in line with neighboring US, could lend some strength, although this could put further selling pressure on the loonie. If inflation is higher than expected, there will be more pressure on the Bank of Canada to keep interest rates high for an extended period of time, as Bank of Canada Governor Macklem has emphasized: “Many Canadians could face long-term hardship from rising interest rates,” he said in December.
Bank of Canada Frequently Asked Questions
The Ottawa-based Bank of Canada (BoC) is the institution that sets interest rates and controls monetary policy in Canada. This is done through eight scheduled meetings per year and occasional emergency meetings held as necessary. The BoC's main mission is to maintain price stability, which means keeping inflation between 1 and 3 percent. The main means of achieving this is by raising or lowering interest rates. Relatively high interest rates typically result in an appreciation of the Canadian dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.
In extreme circumstances, the Bank of Canada can enact a policy tool called quantitative easing. QE is the process by which the BoC prints Canadian dollars for the purpose of purchasing assets (usually government and corporate bonds) from financial institutions. QE typically weakens CAD. Quantitative easing is a last resort when the objective of price stability cannot be achieved by simply lowering interest rates. The Bank of Canada adopted this measure during the Great Financial Crisis of 2009-2011, when banks lost confidence in each other's ability to repay their debts and credit froze.
Quantitative tightening (QT) is the opposite of QE. This is done after quantitative easing, when economic recovery is underway and inflation begins to rise. In QE, the Bank of Canada purchases government and corporate bonds from financial institutions to provide liquidity, but in QT, the Bank of Canada stops purchasing further assets and sells the matured principal of bonds it already holds. Stop reinvesting. Usually positive (or bullish) for the Canadian dollar.
economic indicators
Bank of Canada Consumer Price Index Core (YoY)
Published by the BoC Consumer Price Index Core. bank of canada (BoC) represents price changes for Canadian consumers by comparing the cost of a given basket of goods and services on a monthly basis. It is considered a measure of underlying inflation because it excludes the eight most volatile components: fruits, vegetables, gasoline, fuel oil, natural gas, mortgage rates, intercity transportation, and tobacco products. The YoY measure compares the price of a base month to the same month of the previous year. Generally, higher numbers are considered bullish for the Canadian dollar (CAD), while lower numbers are considered bearish.
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