Canadian Dollar Under Pressure from Tariffs and Stagnant Inflation
Canadian Dollar Outlook Weighed Down by CPI and Tariffs
Elias Haddad, an analyst at Brown Brothers Harriman (BBH), expects Canada's July Consumer Price Index (CPI) to show core inflation below 2%, supporting a prolonged pause in interest rate hikes from the Bank of Canada (BoC).
The upcoming CPI report, due on Monday, is expected to reveal headline CPI at 2.9% year-over-year (y/y), while core CPI (excluding food and energy) is projected at 1.8% y/y.
Additionally, the US will impose 50% tariffs on nearly $20 billion in Canadian imports, starting from Wednesday, unless trade talks yield a breakthrough. This includes a range of products such as wine, hockey sticks, and cement, but excludes energy, potash, and other specific goods.
The tariff risks are seen as another headwind for the Canadian Dollar (CAD), with Haddad suggesting that BoC rate-hike expectations could be repriced lower. Currently, markets are pricing in 65 basis points of hikes over the next twelve months against CAD.