Statistics Canada will release August inflation figures on Tuesday, offering the Bank of Canada (BoC) a critical update on price dynamics ahead of its policy decision. Markets expect the central bank to lower rates by 25 basis points to 2.50% on Wednesday.
Headline Consumer Price Index (CPI) is projected to tick slightly above the BoC’s 2% target after a 1.7% year-on-year rise in July. On a monthly basis, CPI is forecast to increase 0.1%. The BoC’s preferred core measure, which excludes food and energy, rose 2.6% in July from a year earlier and inched up 0.1% month-on-month.
Inflation outlook and BoC concerns
While inflation has shown signs of easing, risks remain. Analysts caution that potential US tariffs could fuel domestic price pressures, complicating the policy outlook. BoC Governor Tiff Macklem has previously highlighted that core gauges such as the trim mean and trim median—both hovering near 3%—have caught policymakers’ attention, even as the common measure remains subdued.
Macklem stressed that not all recent price pressures are likely to persist, citing a stronger Canadian Dollar, slower wage growth, and below-potential economic activity as disinflationary forces. Still, markets expect the bank to tread carefully.
Market expectations
For investors, Tuesday’s CPI print will be the immediate focus, while the BoC will pay closer attention to the underlying trim, median, and common measures. A stronger-than-expected reading would reinforce concerns about tariff-related inflation, potentially delaying future easing and lending support to the Canadian Dollar (CAD).
USD/CAD technical outlook
USD/CAD has been consolidating near the 1.3850 level in recent sessions. According to FXStreet’s Senior Analyst Pablo Piovano, renewed selling could drive the pair lower toward the August lows in the 1.3730–1.3720 range. Deeper support sits at 1.3575 (July 23 weekly base), 1.3556 (July 3 low), and the year’s bottom at 1.3538 (June 16).
On the upside, resistance is capped at 1.3924 (August 22 top), with the psychological 1.4000 level and May’s peak at 1.4015 reinforced by the 200-day Simple Moving Average (SMA). From a broader perspective, the bearish bias remains intact as long as spot trades below the 200-day SMA.
Momentum signals are mixed: the Relative Strength Index (RSI) has eased to around 55, suggesting fading upside momentum, while the Average Directional Index (ADX) at 18 indicates a trend that is only slowly gaining strength.
