Buy EUR/CAD at 1.6156. Stop loss at 1.6118.
Canada's July CPI and Market Reaction
Canada's July Consumer Price Index (CPI) came in at +1.7% year-over-year, falling below the expected 1.8% and last month's 1.9%. The slowdown was primarily driven by a drop in gasoline prices, influenced by the removal of the carbon tax.
However, underlying inflationary pressures remain stubborn. The CPI excluding gasoline held steady at +2.5%, the same level as in May and June. Core inflation measures also stayed elevated, with CPI-median at +3.1% and CPI-trim at +3.0%.
Market Perception and Impact
The softer headline CPI sparked renewed speculation about a potential interest rate cut, leading to a sell-off of the Canadian dollar immediately after the announcement.
BMO (Bank of Montreal) noted that the Bank of Canada would likely need to see two to three more months of decelerating inflation before considering a rate cut. Nevertheless, the overall slowdown in inflation was enough to weaken the Canadian dollar.
Summary: While Canada's headline inflation cooled more than expected in July, core inflation remains sticky. The data fueled rate cut speculation, causing the Canadian dollar to sell off.
