Statistics Canada released data on Canadian inflation for May, showing that the annual change in the Consumer Price Index (CPI) increased to 2.9% from 2.7% in the previous month. The Bank of Canada’s core CPI also saw growth, with a yearly increase of 1.8%, up from 1.6% in April. On a monthly basis, both the core and headline CPI rose by 0.6%.
The Canadian CPI data release is scheduled for Tuesday at 12:30 GMT and is expected to influence the timing of the next Bank of Canada interest rate cut. Analysts predict that the annual CPI inflation rate will slow slightly to 2.6% in May, with a monthly increase of 0.3%. The core CPI, which excludes food and energy prices, is expected to hold steady at 1.6% annually and rise by 0.2% monthly.
Despite the expected slight slowdown in inflation, Canada’s inflation rate has been below 3.0% for five consecutive months, approaching the central bank’s target of 2.0%. Market expectations are pricing in another rate cut by the Bank of Canada at the July 24 policy meeting, with the next inflation report likely to confirm these expectations.
The Canadian Dollar (CAD) could be impacted by the CPI data release, depending on whether the figures surprise to the upside or downside. A stronger-than-expected inflation report could support the CAD and lead to a decline in USD/CAD towards the 1.3600 level. However, soft CPI data could increase expectations of another rate cut and push USD/CAD higher towards 1.3800.
Technical analysis of USD/CAD by FXStreet’s Senior Analyst suggests key levels to watch after the inflation report. A break above the 1.3690 level could drive USD/CAD towards 1.3765, with further resistance at 1.3800. On the downside, a close below 1.3665 could pave the way for a test of the 100-day SMA at 1.3619.
Overall, the Canadian inflation report for May is anticipated to provide insights into the country’s economic health and potentially impact the value of the Canadian Dollar. With market expectations leaning towards another rate cut by the Bank of Canada, investors will closely watch the CPI data release for any surprises that could influence future monetary policy decisions.
