Canadian Dollar (CAD) Jumps after Inflation Gain GBP/CAD GBP/USD Stronger

The Canadian Dollar posted widespread gains and advanced on both the Pound (CAD/GBP) and US Dollar (CAD/USD) on Friday following the publication of Canada’s Consumer Price Index. Canadian CPI climbed by 0.3% on the month in October, beating expectations for a 0.2% increase. On the year, CPI jumped from 2.0% in September to 2.4% in October. A more modest rise to 2.1% had been expected. The Canadian Dollar to US Dollar exchange rate jumped to a high of 0.8887 while the Canadian Dollar to Pound Sterling exchange rate achieved 0.5672. Gains in the Canadian Dollar to Euro exchange rate were also aided as the Euro plummeted across the board in reaction to a dovish speech from European Central Bank President Mario Draghi.

As the result might drive the Bank of Canada (BOC) to adjust its outlook for interest rates, the Canadian Dollar rallied across the board and achieved the highest level against the US Dollar since November. As stated by CTV News; ‘Core inflation is followed closely by the Bank of Canada, which aims to keep it as close to its optimal two per cent target as possible. In its October monetary policy report, the Bank of Canada indicated core inflation had climbed more quickly than expected since July, though it had remained close to its mandated bulls eye. At the time, the central bank described the underlying inflationary pressures as "muted" due, in part, to the still-competitive retail sector. The bank predicted both the core and headline Consumer Price Index to stay near the two per cent zone for a sustained period, despite risks including stronger private demand from the US, continued disappointment in worldwide growth, beefed-up household spending in Canada and lower oil prices.’

Commodity-driven currencies also benefited from developments from China. According to Bloomberg; ‘The Dollars of New Zealand and Australia advanced with the ‘Loonie’ as China, the world’s second-largest economy, cut the one-year lending rate by 0.4 percentage point to 5.6 percent, while the one-year deposit rate was lowered by 0.25 percentage point to 2.75 percent, effective tomorrow.’

Next week the Canadian Dollar could be affected by domestic retail sales figures, current account data, industrial product price numbers and GDP data.

The GDP data will give us both the month-on-month figure for September and the quarterly figure for the third quarter. Strong growth data could prompt another Canadian Dollar rally. Fluctuations in crude oil prices could also impact the ‘Loonie’, as could developments in the US and China.