"BoC Governor Stephen Poloz sounded very dovish, not shutting the door to rate cuts given still important downside risks to inflation and elevated risks from household imbalances"
-UniCredit
The loonie has ended this week on a high note, as on Friday there is a bank holiday in Canada, therefore, markets will be driven by earlier events like the BoC meeting or the inflation data that came above market's estimates. The USD/CAD pair advanced 0.15% to 1.0998 immediately after the release of the data, recovering from its two-week low reached in the previous session, as the Bank of Canada showed its intention to stick to the chosen course.
On Thursday, the Statistics Canada said that March's inflation rebounded amid rising energy prices that triggered the biggest gain in shelter costs in more than three years. The costs of living in the land of the maple leaf advanced 1.5% last month after slowing to 1.1% in February. The less volatile core rate, which strips out eight volatile products, climbed 1.3% accelerating from 1.2% in February. The core measure met the consensus forecast, while the overall inflation outpaced analysts' predictions by 0.1%. Shelter costs represents around 26% of the total CPI index, and a 2.7% increase that was the fastest since December 2010, made its significant contribution to the upbeat figure.
The inflation rate and the housing market are the main concerns for the Bank of Canada, and while Thursday's report can be a welcoming sign, the Unicredit bank believes an increase in consumer prices will be short-lived, while USD/CAD will reach 1.12 in Q4 2014.
© Dukascopy Bank SA