Inflation in the world continues to rise, while the world's largest central banks continue to fight it. Central banks have chosen to raise interest rates as one of the main means of this struggle, and so far, judging by the continued growth of the curve reflecting inflation, this struggle does not bring tangible results. On Monday, Statistics New Zealand reported that consumer inflation increased by +2.2% in the 3rd quarter (with a forecast of +1.6% and against the previous value of +1.7%). The annual CPI came out with a value of +7.2% (with a forecast of +6.6% and against the previous value of +7.3%). We wrote about this in our previous review.
Today, the Office for National Statistics published fresh data on consumer inflation in the UK. They were also underwhelming, posting a rise in September CPI from +9.9% to +10.1% YoY. The updated CPI for the Eurozone, which was also published today, also recorded an increase in inflation in the region in September at +9.9% YoY, although it turned out to be slightly weaker than the preliminary value of 10.0%.
Today (at 12:30 GMT), inflation data in Canada will be presented by Statistics Canada together with the Bank of Canada.
The publication of inflation data is very important for economists, market participants, and central bankers. Consumer prices account for the bulk of headline inflation and estimating the rate of inflation is important in setting the parameters for a central bank's current monetary policy. Given that the inflation target for the Bank of Canada is in the range of 1%–3%, the growth of the indicator (CPI and Core CPI) above this range is a harbinger of a rate increase and a positive (under normal economic conditions) factor for the CAD.
Previous base CPI values (from the Bank of Canada): 5.8%, 6.1%, 6.2% (annualized).
The indicator is expected to decrease to 5.6%. On the one hand, the decline in inflation in the face of its high level is a positive factor for the national economy. But on the other hand, it is still high, which continues to put pressure on the BoC to further increase the interest rate.
In other words, it may be difficult to predict the market reaction to this publication. The Canadian dollar may both strengthen, especially if the CPI figures turn out to be higher than expected, and weaken, given the current drop in oil prices as well.
By the way, today (at 14:30 GMT), the US Department of Energy will present its weekly report on oil reserves in the country's storage facilities. So, during this period of time, the USD/CAD pair may swing again.
The next meeting of the Bank of Canada is scheduled for October 26. Assessing the reaction of the Canadian dollar to the results of the September meeting of the Bank of Canada (it first strengthened, and then continued to sharply weaken against the US dollar), it would probably be logical to assume further growth in the USD/CAD pair, also taking into account the fall in oil prices, stock indices and expectations of the development of the Fed's aggressive monetary policy.
On Friday, Statistics Canada is to release its Retail Sales Index, which is a major measure of consumer spending. The index is considered an indicator of consumer confidence, also reflecting the state of the retail sector in the short term, and its possible fall (after falling by -2.5% in July) could provoke a weakening of the Canadian dollar and, accordingly, an increase in the USD/CAD pair, which has been in a steady upward trend since mid-August.
As of writing, it is trading near the 1.3751 mark, through which there is an important short-term support level. Its breakdown and the breakdown of the local support level 1.3657 may provoke a deeper decline, but so far only as a correction. In general, the USD/CAD bullish trend prevails.
