Inflation in Canada peaked, pushing the CAD down

Canada’s price growth rate declined to 3.1% YoY in June from 3.6% a month earlier. However, the monthly rate remains positive (+0.2%), albeit weaker than expected (+0.4%) and one in the previous month (+0.5%).

This data painted a slightly different picture to that of the USA, where prices continued to accelerate in June and inflation reached 5.4%. This difference in price development is, in our opinion, due to exchange rate movements. In June the USDCAD was 15% below levels of a year earlier, which put pressure on import prices.

The most rapid stimulus cut by the Bank of Canada amongst the major developed countries formed the impetus for the CAD growth in the spring months. But the USDCAD trend reversed in June and July.

The slowdown in Canadian inflation is giving the Bank of Canada a more wait-and-see approach before further tightening. And this has the potential to put pressure on the Canadian currency as a less aggressive approach by the central bank will be built into the quotations.

The FxPro Analyst Team