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Canadian Inflation Softer in September, but USDCAD Drops Anyway

Canadian Inflation Softer in September, but USDCAD Drops Anyway

Christopher Vecchio, CFA, Senior Strategist

UPDATE: CAD Consumer Price Index (SEP) > +1.2% y/y versus +1.3% y/y expected, from +1.2% y/y > CAD Bank of Canada CPI Core > +1.3% y/y versus +1.4% expected, from +1.6% y/y > USDCAD BEARISH

Despite a strong housing sector, an improving market, relatively strong growth (especially when compared to most of the struggling G7), and massive balance sheet expansions by many of the world’s major central banks, inflation in Canada can’t seem to find footing. The September Consumer Price Index was released today, and showed just this.

Headline inflation pressures came in weaker than expected, with the CPI increased by +0.2% month-over-month versus +0.3% m/m forecasted, according to a Bloomberg News survey. On a yearly-basis, prices rose only by +1.2% in September, the same pace as in August, and below the +1.3% y/y forecast. Core inflation was also lower, with the monthly reading at +0.2% versus +0.3% m/m forecasted (and previously), and the yearly reading in at +1.3%, below +1.6% y/y in August and the +1.4% y/y forecasted.

But this may not be the worst development for the Canadian economy: in a time in which wage growth across developed economies has been nothing short of stagnant, any preservation of purchasing power for consumers than can be granted bodes well for future growth. After all, consumption is a major part of the headline GDP figure: in Canada, it is nearly 60%.

USDCAD 1-minute Chart: October 19, 2012

Canadian_Inflation_Softer_in_September_but_USDCAD_Drops_Anyway_body_Picture_1.png, Canadian Inflation Softer in September, but USDCAD Drops Anyway

Charts Created using Marketscope – Prepared by Christopher Vecchio

Ahead of and following the release, the USDCAD moved higher, trading back above 0.9900 for the first time since early-September. However, with risk-appetite picking up and the data coming in not too far off of the forecasts, the USDCAD fell back to as low as 0.9882, before trading at 0.9884, at the time this report was written.

--- Written by Christopher Vecchio, Currency Analyst

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