Canada’s inflation edged lower in April, with the Consumer Price Index (CPI) rising 1.7% from a year earlier, down from March’s 2.3% gain and above previous estimates, Statistics Canada reported. On a monthly basis, the headline CPI contracted by 0.1%, down from the previous month’s 0.3% advance.

In addition, the core CPI tracked by the Bank of Canada (BoC) and excluding volatile components such as food and energy, rose 2.5% YoY, and 0.5% MoM.

According to the press release: “Gasoline led the decline in consumer energy prices, falling 18.1% year over year in April, following a 1.6% decline in March. The price decrease in April was mainly driven by the removal of the consumer carbon price… In April, prices for food purchased from stores grew at a faster pace, increasing 3.8% year over year compared with 3.2% in March. Prices for food purchased from stores have been increasing at a faster rate than the all-items CPI for three consecutive months… Year over year, prices for travel tours rose 6.7% in April, after a 4.7% decline in March. On a month-over-month basis, prices for travel tours rose 3.7% in April after an 8.0% decline in March.”

Market reaction

The Canadian Dollar (CAD) maintains its upside traction on Tuesday, motivating USD/CAD to add to Monday's pullback, and drag the pair to the vicinity of 1.3930.

Canadian Dollar PRICE Today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Australian Dollar.

USD EUR GBP JPY CAD AUD NZD CHF
USD 0.09% 0.14% -0.04% -0.14% 0.92% 0.55% -0.13%
EUR -0.09% 0.05% -0.15% -0.22% 0.84% 0.47% -0.22%
GBP -0.14% -0.05% -0.19% -0.28% 0.76% 0.43% -0.22%
JPY 0.04% 0.15% 0.19% -0.08% 0.98% 0.60% -0.01%
CAD 0.14% 0.22% 0.28% 0.08% 1.07% 0.69% 0.05%
AUD -0.92% -0.84% -0.76% -0.98% -1.07% -0.37% -1.01%
NZD -0.55% -0.47% -0.43% -0.60% -0.69% 0.37% -0.63%
CHF 0.13% 0.22% 0.22% 0.01% -0.05% 1.01% 0.63%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

This section below was published as a preview of the Canadian inflation report for April at 08:00 GMT.

  • The Canadian inflation is expected to have lost further momentum in April.
  • The headline Consumer Price Index is seen rising 1.6% from a year earlier.
  • The Canadian Dollar seems to have moved into a consolidative phase.

All eyes will be on Statistics Canada this Tuesday as it releases the April Consumer Price Index (CPI), a key inflation gauge that the Bank of Canada (BoC) closely tracks when setting interest rates.

Headline inflation is expected to have eased sharply, with annual CPI forecast to fall 1.6% from 2.3% in March. On a monthly basis, however, inflation is projected to have picked up slightly, rising 0.5% versus the previous 0.3% increase.

The Bank of Canada will also release its preferred core inflation measures, which aim to strip out volatile price swings for a clearer view of underlying trends. In March, the BoC’s core CPI CPI rose 2.2% from a year earlier.

While recent inflation data suggests price pressures are moderating, markets are expected to tread carefully. The figures do not yet reflect the full impact of US trade tariffs recently imposed under the Trump administration—an element that could complicate the inflation outlook in the months ahead. As a result, a cautious tone is likely to prevail among investors and policymakers alike.

What can we expect from Canada’s inflation rate?

The BoC held its benchmark interest rate at 2.75% last month, pausing after seven consecutive cuts and citing mounting uncertainty surrounding US trade policy as a key reason for withholding its usual economic forecasts.

Officials said the unpredictability of US-imposed tariffs and the potential for a broader global trade conflict made it impossible to provide a reliable outlook. Instead of its regular quarterly projections, the bank released two hypothetical scenarios to illustrate possible outcomes:

In the more optimistic scenario, most tariffs are eventually rolled back through negotiation. The Bank said this would likely result in a temporary slowdown in Canadian and global growth, with inflation dipping to 1.5% for a year before returning to the 2% target.

A more severe scenario envisions a prolonged global trade war. In that case, Canada would enter a deep recession, and inflation would surge past 3% by mid-2026 before gradually easing back to target levels. The bank acknowledged that other outcomes were possible, underscoring the high degree of economic uncertainty.

In its annual Financial Stability Report (FSR), the central bank acknowledged that the system remains resilient for now, but it also flagged rising vulnerabilities if trade tensions drag on.

Officials pointed to the tariffs imposed by US President Donald Trump on Canadian goods and Ottawa’s retaliatory measures as potential threats. They said that while the financial sector is currently holding up well, ongoing tariff battles could eventually hurt banks and financial institutions by making it harder for households and businesses to manage their debt.

The BoC noted that, in the short term, the unpredictability of US trade policy could trigger more market volatility and strain liquidity. In more extreme cases, that kind of turbulence could escalate into broader market dysfunction.

Over the medium to long term, the bank said, a full-blown global trade war could have severe economic consequences.

When is the Canada CPI data due and how could it affect USD/CAD?

Canada’s April inflation data is due out on Tuesday at 12:30 GMT, and markets are bracing for a mixed picture. While there’s a general sense that price pressures may have eased somewhat, the details could go either way.

If inflation comes in hotter than expected, it might prompt the BoC to take a more hawkish stance, which could give the Canadian Dollar a boost. On the flip side, softer numbers would likely reinforce expectations for more rate cuts, putting some pressure on the Loonie.

That said, a sharp jump in inflation isn’t necessarily good news either. It could raise red flags about the health of the Canadian economy, and ironically, that kind of surprise might end up weighing on the currency too. In short, markets are watching closely—not just for the headline number, but for the broader message it sends about where policy and growth are headed.

Senior Analyst Pablo Piovano from FXStreet pointed out that USD/CAD has moved into a consolidative range just below its critical 200-day Simple Moving Average (SMA) at 1.4012.

“If the Canadian dollar manages to clear its 200-day SMA, the near-term outlook should shift to a more constructive one, allowing at the same time for the recovery to gather pace. That said, the 55-day SMA at 1.4098 should offer interim resistance prior to the April high of 1.4414, set on April 1, with a further barrier at the March peak of 1.4542. A breakout above that level could bring the 2025 high of 1.4792, posted on February 3, back into view,” he added.

The resurgence of the bearish tone could motivate USD/CAD to embark on a potential visit to its 2025 floor at 1.3838, marked on April 11,” Piovano said. “That would be followed by the November 2024 low at 1.3817, with the next key support seen at the September 2024 trough of 1.3418.”

From a technical standpoint, Piovano flagged that USD/CAD is currently signalling some sidelined mood based on the Relative Strength Index (RSI) around the 50 threshold. He added that the Average Directional Index (ADX) is easing toward 24 points to some loss of impetus of the current trend.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Bank of Canada FAQs

The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.

In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.

Source: Fxstreet