On Tuesday, the Canadian dollar was virtually unchanged after gaining over the last two days. USD/CAD traded at about 1.3636 in the North American session.
The headline CPI in Canada dropped to 2.5% y/y in July from 2.7% in June and the same as the market estimate. This was the lowest yearly inflation since Mar. 2021. In July, inflation rose to 0.4% monthly after June’s decline of 0.1% and as per market estimates. The gain in the monthly report was due to higher gasoline prices.
Core CPI, which is monitored closely by the Bank of Canada, also dropped. The average of two of the Bank of Canada’s core indicators of inflation in July slowed slightly to 2.55% y/y, compared to June’s 2.7%.
The drop in inflation is encouraging for the BoC, which would prefer to continue cutting interest rates as the economy eases and also provide homeowners who are struggling with high rates with some relief.
The Bank of Canada will meet again on Sept. 4 and will keep in mind that the Federal Reserve will likely cut rates. This means that policymakers at the BoC won’t have to worry that another rate cut will hurt the Canadian currency if the Fed implements its own rate cut.
