Annual inflation in Canada rose to 3.7% per cent in July from 3.1% in June. Price increases were broadly distributed across the economy but gasoline and housing contributed more than others areas (see table above). The inflation rate is uncomfortably high but is only slightly above expectations and therefore not likely to change the Bank of Canada’s view that inflation is transitory or change the course of monetary policy in this country. As such, the release did not impact the exchange rates. Currency markets remain largely unchanged from yesterday with the US dollar trading at close to the highest level in about a month against the Canadian dollar. Markets are eagerly awaiting the week’s biggest catalyst which is the release of the minutes of the last meeting of the Federal Reserve at 2 PM ET. Investors will be looking for clues about when the central bank could start dialing back its monthly bond buying program with a rising expectation that it could begin in October. We expect some volatility in the exchange rate around that release. USD to CAD is currently at 1.261 (CAD to USD at 0.792).
