Annual inflation in Canada, measured by the change in the consumer price index (CPI), remained unchanged at 2.2% in November, Statistics Canada reported Monday. This reading was lower than market expectations of 2.4%.
On a monthly basis, the CPI rose by 0.1% after the 0.2% increase recorded in October.
In addition, the Bank of Canada’s core CPI fell 0.1% month-on-month, while the annual core CPI rose 2.9%, matching October’s reading.
Market reaction
These statements failed to provoke a noticeable market reaction. At press time, USD/CAD was trading at 1.3765, losing 0.05% on a daily basis.
Canadian dollar price this month
The table below shows the percentage change in the Canadian Dollar (CAD) against the major currencies listed this month. The Canadian dollar was the strongest against the US dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -1.37% | -1.15% | -0.71% | -1.53% | -1.60% | -1.08% | -0.96% | |
| euro | 1.37% | 0.22% | 0.67% | -0.16% | -0.24% | 0.29% | 0.41% | |
| GBP | 1.15% | -0.22% | 0.71% | -0.39% | -0.46% | 0.06% | 0.19% | |
| JPY | 0.71% | -0.67% | -0.71% | -0.82% | -0.92% | -0.39% | -0.27% | |
| Canadian | 1.53% | 0.16% | 0.39% | 0.82% | -0.13% | 0.45% | 0.57% | |
| Australian dollar | 1.60% | 0.24% | 0.46% | 0.92% | 0.13% | 0.52% | 0.65% | |
| New Zealand dollar | 1.08% | -0.29% | -0.06% | 0.39% | -0.45% | -0.52% | 0.13% | |
| Swiss franc | 0.96% | -0.41% | -0.19% | 0.27% | -0.57% | -0.65% | -0.13% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select 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 Canadian inflation data at 11:04 GMT.
Canadian CPI data for November is scheduled for release today at 1:30 GMT.
Statistics Canada is expected to show that headline inflation grew at an annual pace of 2.4%, faster than 2.2% in October. Signs of price pressures rising at a faster pace should dampen expectations of further interest rate cuts by the Bank of Canada (BoC) in the near term.
The Bank of Canada is unlikely to raise interest rates sooner because it reiterated in its monetary policy statement that “the current interest rate is at approximately the appropriate level to keep inflation close to 2% as long as the economy and inflation develop in line with expectations.”
In the policy statement, the Bank of Canada also stated that “core inflation remains at around 2.5%.” However, “CPI inflation will remain close to the 2% target as the economic downturn roughly offsets the cost pressures associated with the trade reshaping.”
How could inflation data in Canada affect the USD/CAD?
The USD/CAD pair is trading flat around 1.3773 during the European trading session on Monday ahead of the Canadian CPI data. The 20-day Exponential Moving Average (EMA) is sloping down, and the price is consolidating below it, maintaining the bearish bias and limiting rebound attempts.
A 14-day Relative Strength Index (RSI) at 29 (oversold) indicates bearish momentum. Measured from the low of 1.3549 to the high of 1.4127, the 61.8% retracement level at 1.3770 acts as key support; A close below it would extend the decline towards the 78.6% Fibonacci retracement level at 1.3675.
In case of a bounce, the 50% retracement level at 1.3838 stands as an initial barrier; Failure to clarify it would keep the risks tending to weaken further.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Frequently asked questions about the Canadian dollar
The main factors that move the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s largest export, the health of its economy, inflation and the trade balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are moving into riskier assets (risk on) or looking for safe havens (risk off) – with risk being positive for the Canadian dollar. As its largest trading partner, the health of the US economy is also a major factor affecting the Canadian dollar.
The Bank of Canada (BoC) has significant influence on the Canadian dollar by setting the level of interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The Bank of Canada’s main goal is to keep inflation at 1-3% by adjusting interest rates up or down. Relatively high interest rates tend to be positive for the Canadian dollar. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD negative and the latter positive.
The price of oil is a major factor affecting the value of the Canadian dollar. Petroleum is Canada’s largest export, so oil prices tend to have an immediate impact on the value of the Canadian dollar. In general, if the price of oil rises, the Canadian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of oil falls. Higher oil prices also tend to increase the likelihood of a positive trade balance, which also supports the Canadian dollar.
While inflation has always been thought to be a negative factor for a currency because it reduces the value of money, the opposite is the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to prompt central banks to raise interest rates, attracting more capital flows from global investors looking for a profitable place to keep their money. This increases the demand for the local currency, which in Canada’s case is the Canadian dollar.
Macroeconomic data releases measure the health of the economy and can have an impact on the Canadian dollar. Indicators such as GDP, manufacturing PMIs, services, employment and consumer surveys can all influence the direction of the Canadian dollar. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, it may encourage the Bank of Canada to raise interest rates, leading to a stronger currency. If economic data is weak, the Canadian dollar will likely fall.
