Today, eyes are on Canada’s CPI data, with projections pointing towards an uptick. Expectations peg the headline inflation at 3.8% yoy, an increase from July’s 3.3% yoy. Should this materialize, it would represent a consecutive monthly acceleration, with inflation rate soaring to its pinnacle since April, and significantly surpassing BoC’s 2% target. Nevertheless, monthly CPI growth is projected at 0.2% mom, decelerating from the previous 0.6% mom noted in July.
The inflation surge in August is attributed to an interplay of base effects paired with escalating energy prices. Yet, the most pronounced upside risks are to stem from an array of service prices. The spotlight will undeniably be on the core inflation metrics. Also, a surge in three-month inflation will naturally amplify the likelihood of another rate hikes by BoC, potentially as proximate as October.
BoC’s Governor, Tiff Macklem, elucidated the bank’s stance in a September 7 speech, stating that while “monetary policy may be sufficiently restrictive”, the bank aspires to witness “less-generalized price increases” alongside a dip in the average price rise. Failing to observe such a trend might compel the bank to contemplate elevating the policy rate again, particularly if inflationary tendencies persist.
On the currency front, the Canadian Dollar has showcased commendable strength this month, propelled by a spike in oil prices. CAD/JPY’s break of 109.46 resistance this week argues that rise from 94.04 is resuming for a test on 110.87 key resistance (2022 high). Firm break there will confirm larger up trend resumption. Next target will be 61.8% projection of 94.04 to 109.48 from 104.19 at 113.73. In any case, near term outlook will stay bullish as long as 108.10 resistance turned support holds.
