April 21, 2017 by Karl Schamotta
Canadian price growth cooled sharply in March, bringing Canadian dollar bears out of hibernation ahead of the weekend. Statistics Canada’s Consumer Price Index rose 1.6 percent on a year-over-year basis – after rising almost 2 percent in the prior month. Prices were up in five of the eight major index components in the 12 months to March, with a 15.2 percent rise in typically-volatile non-core gasoline prices lifting the transportation component to a 4.6 percent increase. Forecasts ahead of the print were fixed around the 1.8 percent mark, setting the Canadian dollar up for a fall on the release – the currency is down more than half a percent as we go to pixels.
We suspect that price growth could fall further in the coming months, with the Ontario government’s efforts to cool the housing market limiting appreciation in household balance sheets, while reducing borrowing power – with debt-fuelled spending poised to slow, the rate of deterioration in the Canadian dollar’s domestic purchasing power could also decelerate.
More broadly, currency traders are de-risking going into the first round of the French election on Sunday. The most recent opinion polls put centrist candidate Emmanuel Macron ahead, but last night’s shooting of a Parisian policeman could strengthen Marine Le Pen’s far-right, anti-immigration platform, and send undecided voters into the arms of the anti-euro National Front. The euro has lost altitude overnight, and participants are retreating to safe-haven units like the dollar, Japanese yen and Swiss franc – putting pressure on economically-sensitive currencies.
Bottom Line: Today’s inflation print will do little to alter the Bank of Canada’s “decidedly neutral” policy stance – particularly after the Ontario government introduced measures designed to cool the province’s red-hot housing market. The Canadian dollar is sharply weaker after the print, and will likely trade defensively through to the Sunday market open.
About the Author:
Karl leads Cambridge’s currency research group, focused on analyzing shifts in the world economy and creating strategies that help businesses harness market volatility. He has built risk management and trading programmes for hundreds of major corporations and has extensive experience in managing exposures across major, minor and exotic currencies. Karl is a regular contributor to a number of international finance publications and is often quoted by the Wall Street Journal, Bloomberg, Reuters, CNN, and CNBC.