Canadian Dollar weakens after Canadian CPI eases faster than expected

• The Canadian Dollar lost further ground against the US Dollar on Tuesday.
• Canadian CPI inflation eased more than expected in July, knocking back the Loonie.
• Despite easing inflation pressures, headline inflation metrics are still far above BoC targets.

The Canadian Dollar (CAD) shed further weight on Tuesday, declining against the US Dollar (USD) after Canadian Consumer Price Index (CPI) inflation figures showed a slight easing in headline figures. Despite cooling headline figures, expectations of easing price pressures for consumers remain subdued as still-rising costs for everyday items get offset by fuel price reductions after the federal government axed key carbon taxes.

Rate market bets on the next Bank of Canada (BoC) interest rate cut remain largely unchanged, with median expectations forecasting that the Canadian central bank will continue to stand pat on interest rates until late January. Mixed inflation data bodes poorly for a clear path forward for the BoC, and when coupled with lagging employment numbers through the second quarter, makes it difficult for the BoC to justify dropping rates any further.

Daily digest market movers: Canadian Dollar retreats on complicated CPI inflation print

• The Canadian Dollar fell nearly one-half of one percent against the US Dollar on Tuesday.
• USD/CAD was driven to its highest bids in over two weeks following Canadian CPI inflation data.
• Common CPI held steady at 2.6% YoY, while the BoC's Trimmed Mean CPI held steady at 3.0%.
• Headline CPI ticked higher to 0.3% MoM, also as expected.
• Despite a slight easing overall inflation pressures, the BoC still lacks room to make interest rate cuts thanks to declining hiring figures in the second quarter.
• Economists are equally divided on whether or not the Bank of Canada will be able to justify a rate trim in time for its next rate call in September.

USD/CAD price forecast

Tuesday's bearish Loonie flows pushed USD/CAD back into multi-week highs, and the pair is now poised to close higher for the second week in a row if momentum holds through the end of the week. USD/CAD is inching back toward the 200-day Exponential Moving Average (EMA) near 1.3880, which should provide significant technical resistance for bidders to contend with.

USD/CAD daily chart