Talking Points:

- May Canadian CPI comes in at +2.2%, well-below the +2.6% consensus forecast.

- The Canadian Dollar has slipped across the board, with USD/CAD rallying by more than +100-pips around the figures.

- The weaker inflation report coincides with already-weakening July Bank of Canada rate hike expectations.

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The Canadian Dollar, already reeling from ongoing NAFTA negotiations and increased trade war tensions across the globe, got another dose of bad news this morning upon the dual releases of the April Canadian Retail Sales and May Canadian Consumer Price Index reports. As the world’s eleventh largest economy, much like the United Kingdom or the United States, consumption is the largest component of GDP, and retail sales and inflation are some of the most meaningful data series to provide insight into growth trends.

The contraction in retail sales and the sharp miss on the headline inflation reading suggest that the Canadian economy isn’t as strong as previously thought. The latest bout of releases seems to be directly impacting rate hike expectations for the Bank of Canada, as July hike odds have dropped from 65% yesterday to 55% today (and falling).

Overall, given that the NAFTA negotiations still represent a good deal of uncertainty, it would appear that the foundation is being laid for the BOC to hold off on tightening policy next month; a weak June Canadian labor market report when released on July 6 could be the nail in the coffin on any rate hike speculation.

Here are the full data moving the loonie this morning:

- CAD Consumer Price Index (MAY): +2.2% versus +2.6% expected, from +2.2% (y/y)

- CAD CPI Core (MAY): +1.9% as expected unch (y/y)

- CAD Retail Sales (APR): -1.2% versus 0.0% expected, from +0.8% (m/m)

See the DailyFX economic calendar for Friday, June 22, 2018

USD/CAD Price Chart: 1-minute Timeframe (June 22, 2018 Intraday) (Chart 1)

USD/CAD Surges as May Canadian CPI Misses by Wide Margin

Immediately following the releases, the Canadian Dollar was slammed across the board. USD/CAD rallied from near 1.3270 ahead of the release to as high as 1.3382 in the minute after. At the time this report was written, USD/CAD w as tradding at 1.3350.

Read more: Central Bank Weekly: British Pound Carves Out Reversal Candles after BOE

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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