Whats the next move for USD/CAD after relinquishing its post CPI gains?

18 July 2023, Tuesday
Whats the next move for USDCAD after relinquishing its post CPI gains

Canadian Inflation Drops, Bank of Canada Rate Hike Less Likely


Inflation Numbers


So, there’s this thing called inflation, which basically means that prices of stuff go up over time. In Canada, the inflation rate in June was lower than expected. It was 2.8% instead of 3%. This happened because gas prices went down. If we don’t count gas prices, the inflation rate would have been 4.0% in June. That’s still pretty high! Food prices are also a concern, not just in Canada but in other developed countries too.


Monthly Changes


Now, let’s talk about what happened in June compared to May. The Consumer Price Index (CPI), which measures changes in prices, went up by 0.1% in June. In May, it went up by 0.4%. So, the increase in prices slowed down a bit. One reason for this is that travel tours became cheaper in June. If we adjust for seasonal changes, the CPI still went up by 0.1% in June.


Core Inflation


There’s something called core inflation, which looks at changes in prices without including food and energy costs. In June, core inflation in Canada was at its lowest in 2 years. It was 3.2%, down from 3.7% in May. This is good news for the Bank of Canada (BoC), which is in charge of keeping the economy stable. It means that there might not be a need to raise interest rates soon.


What’s Next?


So, what’s going to happen next? Well, the Bank of Canada had a meeting on July 12, and they were expected to raise interest rates. But with the lower inflation numbers, it might not happen. The Federal Reserve in the United States is also thinking about raising rates, but they might not do it either. This could mean that the value of the US dollar might go up compared to the Canadian dollar in the short-term.


Market Reaction


After the inflation numbers came out, the value of the US dollar compared to the Canadian dollar went up a bit, but then it went back down. It’s hard to say what will happen next. If the US dollar gets stronger in the coming days, the value of the Canadian dollar might go down. But we’ll have to wait and see!


Remember, inflation is when prices go up, and it affects the economy. It’s important to keep an eye on these things to understand what’s happening in the world. Stay curious!