USDCAD Pair Falls on Upbeat Canadian Inflation Data, Weak USD

The USDCAD currency pair was trading down 59.5 pips (0.44%) as the Canadian dollar rallied against its US peer on upbeat inflation data. The upbeat inflation data reignited bets that the Bank of Canada will have to implement another rate hike in future.

The currency pair’s decline was accelerated by the upbeat inflation figures released by Statistics Canada. The upbeat headline inflation data came in at 4.4% beating analysts’ consensus estimates of 4.1%. This was the headline inflation data.

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However, the core inflation data dipped slightly to 0.5% in April as opposed to last month’s 0.6% print, while the annualised core inflation figure fell to 4.1% compared to 4.3% in March. 

The currency pair’s decline was further boosted by the weak US monthly retail sales data for April, which came in at 0.4%, missing analysts’ estimates of 0.8% growth. The tepid growth witnessed in the US came as no surprise, given the high interest rates in the country.

Consumers are pulling back on their spending at retail stores as other necessities take priority over discretionary spending. Consumers are no longer buying high-ticket items such as TVs and other household items, as evidenced by the decline. 

The disappointing retail sales figures released today collaborate with the disappointing sales results reported by Hoem Depot, the largest home improvement retailer in the US, which released disappointing Q1 results earlier and cut its full-year guidance on lower demand. 

The US Dollar Index was trading lower for the day as the disappointing retail sales data dampened demand for the safe-haven currency. 

Analysts at TD Securities commented: “Inflation now lies well above the April MPR’s implied forecast of 4.0% y/y, and while the top-line story on core inflation may provide some reassurances to the BoC, the underlying story is one of further evidence that policy may not be tight enough to bring inflation down to its 2% target over a reasonable horizon. The risks continue to build for a BoC hike later this year, especially if Q1 growth figures surprise sharply to the upside.”

The USDCAD’s future performance could also be affected by the upcoming speeches from Fed policymakers later today. 

*This is not investment advice. 

The USDCAD price chart.

The USDCAD currency pair was trading down 59.5 pips (0.44%) as the loonie rallied against the greenback.