Canada’s Inflation Hits 2%, Reducing Chances of Major Rate Cut

Canada's annual inflation rate increased to 2.0% in October, exceeding market expectations due to a smaller decline in gasoline prices compared to September. This marks the first rise in annual inflation since May and aligns with the Bank of Canada’s forecast. On a monthly basis, the consumer price index (CPI) grew by 0.4%, surpassing the expected 0.3% gain.

Core inflation measures, CPI-median and CPI-trim, also rose, reaching 2.5% and 2.6%, respectively, while grocery prices climbed 2.7%, outpacing headline inflation. In contrast, services inflation slowed to 3.6%, and goods prices grew slightly by 0.1%.

The data has reduced the likelihood of a significant rate cut by the Bank of Canada in December. The probability of a 50-basis-point cut fell to 26% from 37%. However, further economic indicators, including GDP and employment data, will influence the final decision.

Meanwhile, Canadian factory sales dropped by 0.5% in September, and manufacturing sales excluding motor vehicles and parts fell by 0.7%. Housing starts in October rose by 8%, reaching an annualized rate of 240,761 units, while home sales increased 7.7% month-over-month and 30% annually. Despite higher activity, the home price index decreased 0.1% month-over-month and 2.7% annually, although the average selling price grew 6% year-over-year.

The U.S. dollar remained near a 13-month high on Friday as investors evaluated the Federal Reserve's interest rate trajectory. At the same time, data showed U.S. weekly jobless claims unexpectedly fell to a seven-month low, suggesting job market resilience but also highlighting longer re-employment times, potentially allowing the Fed to consider a December rate cut. Markets currently see a 57.8% chance of a 25-basis-point cut at the Fed's December meeting, down from 72.2% a week earlier.

The dollar has gained about 3% this month, buoyed by expectations of inflation under President-elect Donald Trump's policies. However, uncertainties remain regarding the scale and timing of these policies, including tariffs targeting Europe and China.

Mortgage rates reached a four-month high, with the average 30-year fixed-rate mortgage rising to 6.84%, up from 6.785% last week. Higher rates, combined with rising home prices, may deter buyers. Nevertheless, existing home sales rebounded sharply in October, increasing 3.4% month-on-month to 3.96 million units and recording a 2.9% annual gain, the first since July 2021. The surge followed a brief decline in mortgage rates earlier in the month. As a result, it is expected that the Canadian dollar will continue to fluctuate within its current range, with a slight potential to move toward the upper bound. The currency is also anticipated to maintain a weakening trend against the U.S. dollar during this period.

Data for Technical Analysis (1D) CFD USD/CAD

Resistance : 1.3978, 1.3990, 1.4009

Support : 1.3940, 1.3928, 1.3909

1D Outlook

Source: TradingView 

Buy/Long 1 If the support at the price range 1.3910 - 1.3940 is touched, but the support at 1.3940 cannot be broken, the TP may be set around 1.3990 and the SL around 1.3895, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3978 - 1.4008, TP may be set around 1.4032 and SL around 1.3925, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3978 - 1.4008 is touched, but the resistance 1.3978 cannot be broken, the TP may be set around 1.3940 and the SL around 1.4023, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3910 - 1.3940, TP may be set around 1.3878 and SL around 1.3993, or up to the risk appetite.       

Pivot Points Nov 22, 2024 03:12AM GMT