Canada's Consumer Price Index (CPI) data for May is set to be released on Monday, with economists forecasting a year-over-year increase of 2.9%, up from April's 2.8% annual rise, and a monthly gain of 0.7% [1]. The core CPI, which excludes food and energy, is expected to rise by 2.2% year-over-year, compared to 2.1% in the previous month [1]. The Bank of Canada (BoC) recently kept its policy rate unchanged at 2.25% following its June 10 meeting, aligning with market consensus [1]. Governor Tiff Macklem emphasized that future policy decisions would be data-dependent, highlighting that while core inflation has edged lower, ongoing economic weakness continues to exert downward pressure on prices [1].
The BoC's preferred inflation measures—CPI-Common, Trimmed Mean, and Median—moderated but remained above the bank's target at 2.5%, 2.0%, and 2.1%, respectively [1]. Market participants are currently pricing in just over 22 basis points of tightening by year-end [1]. The recent US-Iran deal is expected to reduce the geopolitical premium on crude oil prices, potentially easing inflationary pressures from energy, with US tariffs remaining as a possible source of price increases [1].
The release of the May CPI data at 12:30 GMT is anticipated to be a key market event, with the potential for higher inflation readings to increase the likelihood of further rate hikes and provide support for the Canadian Dollar (CAD) [1]. Analyst Pablo Piovano notes that USD/CAD has been on an upward trend since early May, influenced by Middle East developments and US Dollar movements, currently trading above 1.4100 and approaching the April 2025 peak of 1.4414 [1]. Technical support levels for USD/CAD are identified at the 200-day SMA (1.3820), 55-day SMA (1.3794), 100-day SMA (1.3751), and further down at 1.3549, 1.3525, and 1.3504 [1]. Piovano also suggests that current momentum could prompt a technical correction [1].
CONCLUSION
Canada's May CPI is expected to show a modest acceleration in inflation, keeping the BoC's policy stance under scrutiny. While the market anticipates limited tightening by year-end, the upcoming data release could influence expectations for rate hikes and impact the Canadian Dollar. Technical analysis suggests USD/CAD remains in an uptrend, though a correction is possible.