Canada’s inflation edged higher in September, with the Consumer Price Index (CPI) rising 2.4% from a year earlier, up from August’s 1.9% increase, according to Statistics Canada. The figure came in just above market expectations, while prices gained 0.1% on a monthly basis.
The Bank of Canada’s (BoC) preferred core CPI measure, which strips out volatile components such as food and energy, rose 2.8% over the last twelve months and climbed 0.2% on the month.
Among the central bank’s closely watched inflation gauges, the Common CPI increased 2.7% on an annual basis, the Trimmed CPI climbed 3.1%, and the Median CPI rose 3.2%, underscoring that underlying price pressures remain relatively firm alongside headline pick-up.
According to the press release: “On a year-over-year basis, gasoline prices fell less in September (-4.1%) compared with August (-12.7%) due to a base-year effect, leading to an acceleration in headline inflation. Excluding gasoline, the CPI rose 2.6% in September, after increasing 2.4% in August. A slower year-over-year decline in prices for travel tours (-1.3%) and a larger increase in prices for food purchased from stores (+4.0%) also contributed to the upward pressure in the all-items CPI in September.”
Market reaction
The Canadian Dollar (CAD) picks up pace and drags USD/CAD to the vicinity of the 1.4000 region, or daily lows, in the wake of the release of Canadian inflation data in September.
Canadian Dollar Price Today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.33% | 0.26% | 0.91% | -0.17% | 0.35% | 0.39% | 0.39% | |
| EUR | -0.33% | -0.07% | 0.58% | -0.50% | 0.04% | 0.05% | 0.06% | |
| GBP | -0.26% | 0.07% | 0.65% | -0.42% | 0.11% | 0.13% | 0.14% | |
| JPY | -0.91% | -0.58% | -0.65% | -1.08% | -0.56% | -0.54% | -0.52% | |
| CAD | 0.17% | 0.50% | 0.42% | 1.08% | 0.52% | 0.55% | 0.56% | |
| AUD | -0.35% | -0.04% | -0.11% | 0.56% | -0.52% | 0.02% | 0.00% | |
| NZD | -0.39% | -0.05% | -0.13% | 0.54% | -0.55% | -0.02% | 0.00% | |
| CHF | -0.39% | -0.06% | -0.14% | 0.52% | -0.56% | -0.01% | -0.01% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
This section below was published as a preview of the Canadian inflation report for September at 08:00 GMT.
- Canadian inflation is expected to pick up pace in September.
- The core CPI is still seen well above the BoC’s 2% goal.
- The Canadian Dollar depreciates to multi-month lows vs. the US Dollar.
Statistics Canada will publish September’s inflation figures on Tuesday. The numbers will give the Bank of Canada (BoC) a fresh read on price pressure as the central bank weighs its next move on interest rates. The BoC is expected to trim the interest rate by 25 basis points to 2.25% at its meeting on October 29.
Economists expect the headline Consumer Price Index (CPI) to rise 2.3% in September, surpassing the BoC’s target, following a 1.9% annual gain in August. On a monthly basis, prices are forecast to drop by 0.1%, matching the contraction recorded in the previous month.
The BoC will also be watching its preferred core measure, which strips out the more volatile food and energy components. In August, that gauge rose 2.6% from a year earlier and came in flat for July.
Analysts remain wary after inflation picked up pace in August. The threat of US tariffs pushing up domestic prices looms large, adding uncertainty to the outlook. For now, both markets and policymakers are likely to exercise caution.
What can we expect from Canada’s inflation rate?
The Bank of Canada lowered its benchmark rate by 25 basis points to 2.50% in August, a decision that lined up with market expectations.
At that gathering, Governor Tiff Macklem struck a cautious tone at his usual press conference. He said the inflation picture hasn’t changed much since January, noting mixed signals and a more data-dependent stance as the bank takes decisions “one meeting at a time.” He also acknowledged that inflationary pressures look a little more contained but reiterated that policymakers remain ready to act if risks tilt higher.
For markets, the headline CPI print will be the immediate focus. But at the BoC, attention will remain squarely focused on the details: the Trimmed, Median, and Common measures. The first two have remained near the 3.0% level, feeding concern inside the bank, while the common gauge has ticked a tad lower, albeit still above the bank’s goal.
When is the Canada CPI data due, and how could it affect USD/CAD?
Markets will be watching closely on Tuesday at 12:30 GMT, when Statistics Canada publishes the inflation report for the month of September. Traders are alert to the risk that price pressures could flare up again.
A stronger-than-expected reading would reinforce concerns that tariff-related costs are beginning to filter through to consumers. That could make the Bank of Canada more cautious in its policy stance, a scenario that would likely lend short-term support to the Canadian Dollar (CAD), while keeping attention fixed on trade developments.
Senior Analyst Pablo Piovano from FXStreet notes that the Canadian Dollar has moved into a consolidative theme in the upper end of its recent range, slightly above the key 1.4000 hurdle. In the meantime, further gains appear likely while above the key 200-day SMA around 1.3960.
Piovano indicates that the resurgence of a bullish tone could motivate USD/CAD to challenge the October ceiling at 1.4080 (October 14), prior to the April high at 1.4414 (April 1).
On the other hand, Piovano suggests that key contention emerges at the critical 200-day SMA at 1.3963, ahead of the provisional support at the 55-day and 100-day SMAs at 1.3861 and 1.3781, respectively. The loss of this region could spark a potential move toward the September base at 1.3726 (September 17). A deeper retracement could prompt a test of the July valley at 1.3556 (July 3) to re-emerge on the horizon.
“Furthermore, momentum indicators lean bullish: the Relative Strength Index (RSI) hovers near 66, while the Average Directional Index (ADX) is beyond 36, indicating a strong trend,” he says.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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