Inflation in Canada, as measured by the change in the Consumer Price Index (CPI), declined to 2.3% on a yearly basis in March from 2.6% in February, Statistics Canada reported on Tuesday. On a monthly basis, the CPI rose 0.3% following the 1.1% increase recorded in February.

The Bank of Canada's (BoC) core CPI, which excludes volatile food and energy prices, rose 2.2% in the 12 months to March, down from the 2.7% increase recorded in the previous month.

Market reaction to Canada inflation data

USD/CAD gained traction with the immediate reaction to the softer-than-expected inflation data and was last seen rising 0.25% on the day at 1.3910.

Canadian Dollar PRICE Today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the weakest against the New Zealand Dollar.

USD EUR GBP JPY CAD AUD NZD CHF
USD 0.15% -0.35% -0.26% 0.19% -0.78% -1.02% 0.24%
EUR -0.15% -0.50% -0.40% 0.04% -0.87% -1.16% 0.11%
GBP 0.35% 0.50% 0.11% 0.54% -0.36% -0.66% 0.61%
JPY 0.26% 0.40% -0.11% 0.43% -0.50% -0.91% 0.48%
CAD -0.19% -0.04% -0.54% -0.43% -0.93% -1.21% 0.05%
AUD 0.78% 0.87% 0.36% 0.50% 0.93% -0.30% 0.97%
NZD 1.02% 1.16% 0.66% 0.91% 1.21% 0.30% 1.28%
CHF -0.24% -0.11% -0.61% -0.48% -0.05% -0.97% -1.28%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

This section below was published as a preview of the Canada Consumer Price Index (CPI) data at 08:00 GMT.

  • The Canadian Consumer Price is expected to hold steady at 2.6% YoY in March.
  • The Bank of Canada will announce its monetary policy decision on Wednesday.
  • The Canadian Dollar retains its strength against its American rival, lower lows ahead.

Statistics Canada will release the March Consumer Price Index (CPI) report on Tuesday. Annualised inflation is expected to have held steady at 2.6%, matching the February reading. Market players anticipate a monthly advance of 0.7%, easing from the previous 1.1%. At the same time, the Bank of Canada (BoC) will release its own core CPI estimates, which measure underlying inflation by trimming volatile food and energy prices. According to the latest release, core BoC CPI rose 0.7% MoM and 2.7% YoY in February.

The figures are relevant ahead of the Bank of Canada's monetary policy announcement on Wednesday. The central bank is widely anticipated to keep the benchmark interest rate at 2.75%. Officials trimmed it when they met on March 12, the seventh consecutive cut, leaving the main rate at its lowest since 2022.

The expected uptick in inflation is more worrisome than what policymakers may let see. The United States (US) President Donald Trump’s decision to impose tariffs on pretty much all trading partners has taken its toll. Back and forth in Trump’s announcement still results in Canada being charged with 25% levies on exports to the US.

Ahead of the announcement, the USD/CAD pair trades near the multi-month low posted earlier in April at 1.3827.

What can we expect from Canada’s inflation rate?

BoC officials are well aware of the risks related to the trade war and its potential effects on the local economy. Slowing growth and higher inflationary pressures are the heart of concerns, not just in Canada.

Policymakers also anticipated volatile inflation levels amid tariffs but expected it to remain near 2% over the projection horizon. Would they maintain such a view? That’s something that has yet to be seen after the release of this CPI report.

Officials also expressed that the White House decision to impose massive tariffs “has emerged as a major source of uncertainty.” And it is not the only one. Investors are unsure of what the BoC will do this week. While there’s a major consensus indicating an on-hold decision, there’s a large portion of analysts anticipating another 25 bps interest rate cut.

A rate cut could be in the table if CPI figures are below expectations. A rate hike, on the other hand, seems unlikely at this point, yet higher-than-anticipated figures should lead to speculation that rate cuts are over in the near future. A hawkish shift may lead to a firmer Canadian Dollar (CAD), although investors may hold their fire during the CPI release ahead of the BoC’s confirmation a day after.

Additionally, it is worth noting that increased fears of a recession may force the BoC to trim interest rates, even if inflationary pressures increase by more than anticipated in March.

As said, uncertainty is high among all market participants. With that in mind, the reaction to the data release could be short-lived and quickly overshadowed by fresh tariff-related headlines.

When is the Canada CPI data due and how could it affect USD/CAD?

Canada's March inflation report will be published on Tuesday at 12:30 GMT, with market participants expecting price pressures to remain broadly unchanged from February. As usual, the divergence between the market expectations and the actual figures will be responsible for CAD’s reaction.

Generally speaking, higher-than-anticipated figures would suggest the BoC may need to adopt a more hawkish stance and, hence, push the CAD higher vs other rivals. The opposite scenario is also valid, with softer-than-anticipated readings suggesting the BoC could keep trimming rates. Yet, at the same time, a steep acceleration in price pressures could spur concerns about Canadian economic health and, hence, weigh on the CAD.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “Ahead of the announcement, the Canadian Dollar consolidates gains against the battered US Dollar (USD). The daily chart for the USD/CAD pair shows that technical indicators lost their downward momentum at oversold levels, yet there are no immediate signs of downward exhaustion. Furthermore, the pair is developing below all its moving averages, with the 20 Simple Moving Average (SMA) accelerating south below a flat 100 SMA, both far above the current level. Overall, lower lows remain on the table.”

Bednarik adds: “USD/CAD is on a pause ahead of first-tier events, but the technical risk remains skewed to the downside. The monthly low at 1.3827 is the immediate support ahead of the 1.3470 region. The CPI needs to be shockingly poor to trigger a break below the latter. Resistance, on the other hand, can be found at around the 1.3900 threshold, en route to 1.3950. Further gains towards 1.4000 will likely attract selling interest.”


Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Source: Fxstreet