The US Dollar Index (DXY) hit one-week highs of about 98.84, on its third day of gains in a row. The other issue is that the U.S. dollar is on a pretty strong upward trend. This increase comes in tandem with significant economic news from our northern neighbor, as Canada’s Consumer Price Index (CPI) jumped 2.4% annually in September. This hike surprised the markets and has changed the Bank of Canada’s (BoC) interest rate cut forecasts.
On the economic front, Canada’s CPI surprised to the upside, rising from 1.9% in August to well above market expectations in September at 2.8%. This jump is a sign of building inflationary pressures throughout the Canadian economy. These fiscal and political pressures might influence the Bank of Canada’s monetary policy decisions in the coming weeks. Canada’s Consumer Price Index (CPI) increased slightly at 0.1% this month. This jump indicates the first monthly increase in consumer prices since last summer.
U.S. central bank’s broader measure of core inflation, the so-called PCE index, climbed by 0.3% m-o-m. This is an increase from a 0.2% gain in August. Investors are keenly looking ahead to Friday’s U.S. Consumer Price Index (CPI) reading. To reiterate, this data will be fundamental in both establishing the post-pandemic economic landscape as well as informing the Federal Reserve’s monetary policy in response.
The Canadian Dollar is finding itself on the ropes as oil prices plummet. As of mid-week, West Texas Intermediate (WTI) crude oil hovers around five-month lows, close to $57 per barrel. The decline in oil prices has further burdened the Canadian economy, as it is highly dependent on energy exports. The USD/CAD crosses currently hovering close to 1.4030. This demonstrates the true value of the Canadian dollar since it is heavily influenced by the movement of erratic commodity prices.
Analysts are closely watching this spending pivot as President Trump’s trade war with China appears to cool. This shift is occurring during what has become one of the longest government shutdowns in United States history, now entering its fourth week. The current partial shutdown is raising fears as to how its effects might hurt the overall U.S. economy and threaten fiscal stability. For now, optimism over the recent thaw in trade relations is lifting market sentiment.
Recent Canadian CPI data has triggered a pretty dramatic move in expectations. As it is, plenty are already betting that the Bank of Canada won’t do any rate cutting at its scheduled Oct. 28 meeting. The odds of a 25-bps cut have fallen to about 74%. Nervous investors have had to retrain their eyes on the central bank’s policy playbook with each new inflation print.