Inflation is very much a ‘non-issue’ for Canada and its other G7 members. Canadian annual consumer prices accelerated last month to a four-month high, driven by some of the usual suspects, gas and costs of vehicles. However, the elevated +1.2% year-over-year rate remains well below the Bank of Canada’s threshold of +2% inflation target. This very much supports the dovish tone expressed by the BoC’s new-governor Poloz earlier this week. This would suggest that there is no immediate pressure on policy makers to be hiking rates any time soon.
The core rate, excluding food and energy, dropped -0.2% m/m, but was up +1.3% y/y, from +1.1%. The news saw short term rates slightly lower with 2-year yields at touching its 200 DMA of +1.08%. The rate differentials would benefit the dollar bulls outright, however, selling by the techs has dominated most of Fridays action. The commodity bulls and their underlying assets are very much in tow supporting them.
Historically, the loonie is known as a commodity and interest rate sensitive traded currency. This week, both crude oil and gold have helped the currency to end on a high. Crude had gains of +$3.50 on the week and close to +$12 on the month, while gold too is rallying for a second day. The yellow metals prices are bumping up against its two-month moving average, an effective resistance point since last February.
The dollar bears are expected to get braver only below Wednesday’s low of 1.0355, otherwise this currency pair is doomed to another contained G7 trading range.
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