Canadian Dollar twists near 1.43 as Canadian inflation accelerates

• The Canadian Dollar churned chart paper near 1.43 on Tuesday.
• Canadian CPI inflation accelerated faster than expected in February.
• Despite the inflation uptick, the Loonie is holding steady as BoC rate cut bets ease.

The Canadian Dollar (CAD) found a foothold against the US Dollar (USD) on Tuesday, cycling near the 1.4300 handle after Canadian Consumer Price Index (CPI) inflation accelerated even faster than expected in February. Despite inflation once again rearing its head in Canadian data, the Loonie found some market support as the CPI upswing diminishes odds of further rate cuts from the Bank of Canada (BoC).

The BoC’s latest rate cut last week is proving to be just as poorly-timed as most market participants expected. Inflation pressures are back above the Canadian central bank’s 2% annualized inflation target, and showing serious signs of accelerating. The BoC has cut interest rates seven times since H2 2024, presumably in an effort to try and tamp down on runaway housing prices, a truly bizarre strategy in a country where the majority of mortgage rates are tied to Canadian bond yields rather than directly correlated to interest rates. 

As the BoC slashes rates while tumbling straight down a fresh inflation hole, markets already rattled by a growing trade war between Canada and the US have pushed bond yields even higher as investors struggle to understand what BoC Governor Tiff Macklem is trying to accomplish. The BoC now finds itself in the unenviable position of having few rate cuts left in the powder bag to bolster the Canadian economy should the economy continue to take a turn for the worse, alongside high inflation and still-too-hot housing costs to contend with.

BoC Consumer Price Index Core (YoY) 

Daily digest market movers: Canadian Dollar holds steady after markets call inflation uptick

• Canadian Dollar holds steady near key 1.4300 level against Greenback on Tuesday.
• Headline Canadian CPI inflation accelerated to 2.6% YoY in February, well above the median market forecast of 2.1% and rising sharply from the previous period’s 1.9%.
• The BoC’s own core CPI inflation metric also accelerated, bounding to 2.7% YoY from 2.1%.
• Market bets of another BoC rate cut at the Canadian central bank’s next rate call have withered in the face of a new round of inflation pressures within the Canadian economy. Rate swaps now see a 30% chance of yet another quarter-point cut in April, down from 45% pre-CPI data.
• Canadian economic data remains limited through the remainder of the trading week, however mid-tier Canadian Retail Sales are slated for Friday.

Canadian Dollar price forecast

The Canadian Dollar’s stubborn hold near the 1.4300 handle against the Greenback has left the USD/CAD pair strung out near the low end of a too-familiar lateral channel. The pair continues to churn near the 50-day Exponential Moving Average (EMA) as a long-term trend remains absent.

The immediate challenge for a continued leg higher for the Loonie will be a hefty supply zone priced in on USD/CAD between 1.4200 and 1.4100.

USD/CAD daily chart