Canadian inflation slows to lowest level since 2021

Canadian inflation slowed as expected to 2.5% year-on-year, the lowest since March 2021. Several core indices tracked by the Bank of Canada (common, median and trimmed) also fell to three-year levels, with prices rising more slowly than the average market analyst forecast.

Real estate prices are back in positive territory and thus at the previous year's level, 0.9 percent below the historic high of the nominal index.

The Bank of Canada cut interest rates twice in June and July, from 5.00% to 4.50%, even though price growth remains above target. The question remains whether the pace of monetary easing is too fast.

USDCAD has fallen 2.5% since its August 5 high, when it again failed to consolidate above 1.39. The pair has not made consistent gains since September 2022, and declines above 1.40 over the past six years have been short-lived, coinciding with the oil price crash in late 2015 and March 2016.

However, the USDCAD pair has been falling for the past three weeks despite a two-week decline in oil prices, reaching the 200-day moving average and the lower end of its range since May. A break below this level (if the bears have the strength to do so) would be a very important signal for North American traders' sentiment towards the USD.