CAD Rebounds as Slowing Inflation Bolster Performance

• CAD receives fundamental uptick from slowing inflation


• Canadian economy reflects a generally positive outlook

Friday began with a rising USDCAD due to the weakening oil prices and a dominant USD, the dollar had previously won against a basket of other major currencies due to the uncertainty in the European economy.

Canadian statistics data which came in later on Friday indicated an annual inflation rate reported at 1.5% in June maintaining a value under the 2% target set by the Bank of Canada for five consecutive months, this was followed by an initial market response of a USDCAD bullish consolidation.

Widespread perception amongst analysts was that the rate would slide to 1.4%, as the forecasted value was set at 1.4% but prices have grown by 0.2% from May.

Canadian stocks had opened higher on Friday in anticipation of the release of data on retail sales and inflation.

Major Canadian stocks like Encana corp. and Rogers Communications Inc were bolstered by strong earnings reports and mining stocks rallied.

Stripping out the prices of some major volatile components, the core inflation rate which is also a major focus of the Bank of Canada remains at 2.1%.

Last year in a bid to support the economy's struggle with the burden of falling oil prices, the Bank of Canada slashed the rate, analysts currently expect the bank not to interfere with the Canadian economy for at least another year.

Amidst an endorsement made by the BoC governor Stephen Poloz to the adoption of a wait-and-see method for monetary policy, the BoC have not fully dismissed the possibility of a reduction of the benchmark interest rate as the economy is currently reeling from the oil price shock, as the fall in crude oil prices create a possibility for the use of extreme measures.

The shelter index is higher reporting a 1.6% gain, food prices have grown by 1.3%, and the Canadian economy has also witnessed a general price growth in all major Canadian components in the 12 months preceding June.

A more detailed look at the report shows the cost of food shrinking another 0.3% in May, transportation costs have also grown 1.3%, and the cost of footwear and clothing maintains its previous level during the same period.

An upwind in the private-sector consumption paired with growing input costs may drive Canadian firms to raise consumer prices and a surprising increase in the core inflation rate may advance an appeal for the Canadian Dollar as it enables the BoC to steadily back away from its easing cycle further promoting the strength of the currency.

The USDCAD maintains its strength with a high possibility of a short term decline in the CAD against the USD in the coming weeks, the pair which is currently trading at 1.3140 is expected to reach 1.3120 briefly before going higher with analysts forecasting that it will go as high as 1.3265 in the short term due to the bearish sentiment currently trailing the CAD.