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Market News Canada's CPI rose more than expected in April, the United States and Canada fell slightly in the short term, and the Bank of Canada may accelerate interest rate hikes in June

Canada's CPI rose more than expected in April, the United States and Canada fell slightly in the short term, and the Bank of Canada may accelerate interest rate hikes in June

In the New York session on May 18, the Canadian side announced the CPI data for April, and the result was higher than market expectations. After the Canadian inflation data was released, the USD/CAD fell slightly by 10 points in the short term.

2022-05-18
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In the New York session on Wednesday (May 18), Canada announced the CPI data for April, which was higher than market expectations. After the Canadian inflation data was released, the USD/CAD fell slightly by 10 points in the short term.


USD/CAD 5-minute chart shows

Specific data show that Canada's April CPI annual rate actually announced 6.80%, expected 6.7%, the previous value of 6.7%.

Canada's April unseasonably adjusted CPI monthly rate actually released 0.6%, expected 0.5%, and the previous value of 1.4%.

Canada's April core CPI-normal annual rate was actually released at 3.2%, expected to be 2.9%, and the previous value of 2.8%.

The central bank of Canada's core CPI in April actually announced a monthly rate of 0.7%, expected 0.4%, and the previous value of 1%.

Statistics Canada noted that inflation growth in April was largely driven by food and housing prices. The pace of natural gas price increases slowed in April compared to March, slowing the acceleration in the headline consumer price index in April.

Statistics Canada pointed out that the Russian-Ukrainian conflict continues to affect energy, commodities, and especially food prices. Strong jobs data tends to put upward pressure on prices as the unemployment rate fell to a record low in April. Average hourly wages for corporate employees rose 3.3 per cent year-on-year in April, meaning that, on average, prices rose faster than wages and Canadians' purchasing power declined.

Last month, the Bank of Canada raised its neutral rate forecast to a range between 2% and 3%, up 0.25 percentage points. Economists believe that once interest rates reach the neutral rate range set by the Bank of Canada, the Bank of Canada may pause rate hikes, reassess the situation, and decide whether to continue raising interest rates.

Some analysts pointed out that there are some factors that will cause the Bank of Canada to suspend interest rate hikes after reaching the neutral interest rate. The most prominent factor is real estate. The housing market has become such a big bubble that affecting the housing market may cause pressure on the entire economy. .

However, Toni Gravelle, deputy governor of the Bank of Canada, steadfastly maintained his view of continuing to raise interest rates. Borrowing costs need to rise quickly to more normal levels to bring inflation back to target, he said, and the current 1% policy rate is "too stimulating".

Gravelle reiterated that rates need to rise further into the neutral 2-3 per cent range to cool domestic inflation in Canada and bring the economy back into balance. "We are taking action to quickly normalize our policy rate and are prepared to take forceful steps if necessary," he said. The Bank of Canada could pause raising interest rates in the neutral range if price pressures start to reverse, or if indebted Canadian households cut spending more than expected.

The Bank of Canada started the interest rate hike cycle in March. Normally, it takes 18-24 months for the interest rate policy to take effect.

Markets are firmly pricing in a second rate hike by the Bank of Canada at its next meeting on June 1. Most economists believe the Bank of Canada will raise its overnight rate to 2 per cent by the summer. Investors see Canada's benchmark interest rate rising above 3 per cent over the next 12 months in one of the most aggressive tightening cycles since the late 2000s.

USD/CAD traded at 1.2817/19 at 20:35 GMT+8.
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