Canadian inflation before the final steps towards the 2% target – Commerzbank

Canadian inflation figures for July are expected this afternoon, says Michael Pfister, foreign exchange analyst at Commerzbank.

CAD likely to remain under pressure

“Anything other than a decline in the annual rate of the policy rate would probably be a big surprise. After all, the last two major base effects will be factored out of the calculation of the annual rate over the next two months.”

“So unless there is a surprise increase in the seasonally adjusted monthly rate of change – and the figures for the past few months hardly suggest such an increase – the year-on-year rate is likely to take the penultimate major step towards the inflation target today.”

“This should be another signal for the Bank of Canada to cut interest rates further in the coming months. And the recent weakening of the labor market gives it every reason to do so. Unless today's numbers surprise on the upside, the Bank of Canada will therefore likely make its next rate cut in early September and the CAD will remain under pressure.”