CAD weakened against other major currencies in the European session on Tuesday as investors waited for the release of Canada’s consumer price index (CPI) data for May later in the day, which could reinforce the bets on additional interest rate cuts from the Bank of Canada this year.
Economists forecast the headline CPI rose 2.6% YoY in May, decelerating from 2.7% YoY in April. This would represent the weakest annual inflation rate since March 2021 (+2.2% YoY). Meanwhile, the trimmed-mean CPI - the BoC’s preferred measure of core inflation - is seen to show an increase of 2.8% YoY for May, down from 2.9% YoY in April, marking a further easing of inflationary pressures within the BoC’s 1-3% target range.
Combined with the data on Canada’s labour market for May, which showed a slowdown in employment to 26,700 from 90,400 in April and an uptick in the unemployment rate to 6.2%, the highest level since January 2022, evidence of further disinflation would support expectations for more rate decreases by the Canadian central bank this year, following its June cut.