Canada’s inflation figures for February are set to be released, with expectations for headline CPI to surpass 2.0% year-on-year due to the end of a sales tax holiday. Core measures, however, are anticipated to stay below 3.0%.
Any notable increase in core inflation could influence market expectations regarding forthcoming rate cuts amid tariffs on steel and aluminium. The Bank of Canada will adjust its policy response based on the balance between growth and inflation.
Market Impact On USD CAD
A current risk premium of 1% on USD/CAD indicates potential stability should it return to February levels. Upcoming trade news and Fed pricing may impact future movements.
Canada’s inflation data for February is about to be published, with forecasts pointing to a year-on-year increase in headline CPI, likely exceeding 2.0%. This is largely down to the expiry of a sales tax exemption, which had previously kept consumer prices lower. That said, core inflation readings are expected to remain below 3.0%, which suggests underlying price pressures might not be running out of control.
Should core inflation come in higher than expected, markets could begin reassessing how much flexibility the central bank truly has regarding future rate cuts. With tariffs on steel and aluminium still playing a role in price dynamics, any unexpected rise in inflation would prompt traders to rethink their bets on imminent policy changes. If the bank sees inflation drifting too far above its target, it may push back against expectations of swift monetary easing.
Trade Developments And Policy Signals
The current pricing of a 1% risk premium on the USD/CAD suggests there’s room for the exchange rate to stabilise if it returns to levels seen at the start of February. However, upcoming trade developments and shifting expectations around Federal Reserve policy could alter that trajectory. With economic data remaining unpredictable, traders will need to keep a close watch on how markets react to both inflation figures and any fresh signals from policymakers.
