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The Bank of Canada now has scope to cut interest rates again.
The Canadian Dollar is under pressure against most of the major currencies after domestic inflation data undershot expectations and raised odds that the Bank of Canada will cut interest rates in September.
Headline CPI rose 1.7% year-on-year in July, down from 1.9% in June and below the consensus expectation of economists (1.8%).
CPI median and trimmed mean inflation, two measures of core inflation that the Bank of Canada watches closely, averaged 3.1% y/y in July, up from 3.0% in June.
The annualised 3‑month moving average of these core seasonally adjusted series will give a better indication of where momentum is: it slowed sharply to an average of 2.4% from 3.4% in June.
Economist Randall Bartlett at Desjardins Bank says this slowdown represents "an abrupt turn but a welcome one."
"The easing of underlying price pressures in the July inflation report may have been just what the doctor ordered," says Bartlett, who judges that the Bank of Canada will cut interest rates in September.
Money markets agree, and the net result is a softer Canadian Dollar, which is registering losses against seven of its nine G10 peers.
The Pound to Canadian Dollar exchange rate trades 0.37% higher on the day at 1.8705, the Euro to Canadian Dollar is 0.43% higher at 1.6164 and the U.S. Dollar to Canadian Dollar pair is 0.40% higher at 1.3856.
"USD/CAD has staged a steady rebound after forming a durable trough near 1.3535 in June. The pair has broken above a multi-month descending trend line and is now above the 50-DMA, underscoring a resurgence in upward momentum," says Tanmay Purohit, technical strategist at Société Générale.
"The next objectives are at projections of 1.3910 and May peak near 1.4000/1.4035," he adds.