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USD to CAD Update: Weak Consumer, Strong Housing, Signs of Inflation, and Canadian Election Risk

A different picture of Canada’s economic circumstances is starting to emerge.  Inflation was up 0.5% in September from the prior year.  That was just above the expectation of 0.4%.  Adding to that view, Canadian home prices posted across-the-board monthly gains in September.  The fear of deflationary pressures are easing and the concern will eventually turn to inflationary pressures.  That is, the fiscal and monetary stimulus to date has been enough to support the economy in unusual circumstances.  But the consumer is not quite where it should be.  Retail sales figures in August were well below expectations.  A few data points are not enough to complete the picture but certainly this morning’s data move us further along from deflation being the primary risk to the Canadian economy to inflation coupled with slow growth.  That may eventually lead to the Bank of Canada to pull back from some of its expansionary policies and strengthen the Canadian dollar.  The risk of an election in Canada is also on the radar given developments in Parliament.  A pandemic election in Canada would be a negative for the Canadian dollar.  After gaining 0.5% yesterday, the Canadian dollar is holding steady today as the markets are calm overall.

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