The Canadian dollar lost approximately ¾ of a penny against the US dollar this morning after Statistics Canada announced that on an annual basis, inflation dropped to 2.8 percent in February. This latest Consumer Price Index inflation reading was lower than what markets had expected.
The report also indicated that on a three-month annualized basis, core inflation slowed to an average of 2.2 percent from 3.1 percent in January. This is significant as core inflation is the Bank of Canada’s most closely watched measure of inflation, suggesting that inflation in Canada is now running very close to the Bank of Canada’s target range of 2%.
When you consider the delayed impacts of interest rate hikes and the BoC’s previous statements that inflation does not have to hit 2% for the BoC to begin cutting rates, most economists are of the view that the BoC will begin its rate-cutting cycle sooner rather than later.
The markets are estimating the odds of a rate cut in April at 25% (up from 16%) and a 73% chance of a cut in June (up from 50%).
So far this year, the USD/CAD has struggled to push past the 1.36 resistance level. However, if the US Federal Reserve Bank, on Wednesday, sounds hawkish (less likely to cut rates) in its statement or press conference, then the USD/CAD could push past 1.36.
The Canadian dollar is currently trading at 1.3561 CAD against the US Dollar.
