Canadian dollar can’t find its footing, Can. CPI next

The Canadian dollar has declined against the US dollar for a tenth consecutive trading day and has fallen 2.1% in October. In Tuesday’s session, USD/CAD is trading at 1.3811 at the time of writing, up 0.11%.

Is the tough battle against inflation finally over? Inflation has been falling and the August CPI was a milestone as inflation dropped from 2.5% to 2%, the Bank of Canada’s target. This was the lowest level since February 2021.

The downward trend is expected to continue in September, with a market estimate of 1.8%. Two key core measures are expected to remain around 2.4%. Monthly, inflation is projected to ease to -0.1%, compared to 0.1% in August. Gasoline prices have been falling and are expected to push September CPI’s below 2%.

Today’s CPI release is the last key economic report before the Bank of Canada announces its next rate decision on October 23. With inflation under control, the BoC has shifted its primary focus away from inflation to the labor market. The BoC has been aggressive and has lowered rates three times this year, as inflation has fallen and the labour market has weakened.

However, the September employment report was stronger than expected, which supports the case for a modest 25-basis point cut rather than a jumbo 50-bps move in October. The BoC would prefer to trim rates gradually at a 25-bps clip, but if key economic data is softer than expected, the BoC could respond with a 50-bps cut.

• USD/CAD is putting pressure on resistance at 1.3816. Above, there is resistance at 1.3834
• 1.3786 and 1.3768 are the next support levels