Statistics Canada is set to release September’s inflation report on Tuesday, offering crucial insights for the Bank of Canada (BoC) ahead of its October 29 meeting, where markets widely expect a 25-basis-point rate cut to 2.25%.
Inflation Outlook
Economists predict the Consumer Price Index (CPI) will climb 2.3% year-on-year in September, up from August’s 1.9%, exceeding the BoC’s 2% target. However, prices are forecast to edge down by 0.1% on a monthly basis, mirroring the previous month’s decline.
The BoC’s core inflation metric — which excludes volatile food and energy costs — rose 2.6% in August compared to a year earlier and remained unchanged from July. This will be closely watched for signs of underlying price pressure.
Balancing Risks and Uncertainty
Analysts remain cautious as August’s inflation uptick raises concern about renewed price momentum. The possibility of U.S. tariffs driving higher domestic prices adds another layer of uncertainty. For now, both policymakers and markets appear poised to proceed carefully.
At its last meeting in August, the BoC reduced its key rate to 2.50%, aligning with expectations. Governor Tiff Macklem maintained a cautious outlook, emphasizing that decisions will remain data-dependent. While he noted that inflationary pressures appear more contained, he reaffirmed that the bank remains ready to act should risks escalate.
Key Measures and Market Reaction
Market attention will be on the headline CPI figure, but BoC officials will focus on the bank’s preferred Trimmed, Median, and Common core measures. The first two remain near 3.0%, signaling persistent inflation concerns, while the Common measure has slightly eased but stays above target.
The inflation data is scheduled for release at 12:30 GMT on Tuesday. A stronger-than-expected reading could suggest tariff-related cost pressures are filtering through to consumers, potentially prompting the BoC to reconsider its easing trajectory. Such an outcome would likely provide short-term support for the Canadian Dollar (CAD).
USD/CAD Technical Outlook
According to Broker Trust Score Senior Analyst, the USD/CAD pair remains in a consolidative phase near the 1.4000 level. The 200-day Simple Moving Average (SMA) around 1.3960 acts as key support.
Notes that a bullish momentum could lift the pair toward resistance at 1.4080 (October 14 high), with a further push potentially revisiting 1.4414 (April 1 high). Conversely, sustained weakness below 1.3960 could open the door to 1.3726 (September 17 low) and possibly 1.3556 (July 3 low).
Momentum indicators also lean bullish, with the Relative Strength Index (RSI) hovering near 66 and the Average Directional Index (ADX) above 36, pointing to a strong prevailing trend.
In short, Tuesday’s CPI release could prove pivotal for both the BoC’s next move and the near-term trajectory of the Canadian Dollar.
