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BoC survey show inflation expectations hit record

Monday 4 July, 2022

Daily Currency Update

The Canadian dollar strengthened against the US dollar on Monday following a quarterly survey of businesses and consumers conducted by the Bank of Canada. The survey showed that Canadian businesses and consumer expectations of inflation is at a record, which could support the central bank's aggressive rate hike outlook. On Wednesday we will see the release of the Federal Open Market Committee (FOMC) Meeting Minutes which provides a detailed record of the FOMC’s most recent meeting, which will display the rationale behind announcing the latest 75-basis point interest rate hike. USDCAD was down 0.11% at around 1.2867 at the time of writing.

Key Movers

HICP (a measure of inflation) in the Eurozone has been in focus and reported at 8.6%, higher than estimates and the prior print of 8.4% and 8.1%. Similar to the inflation rate in the US economy, we are seeing inflation track continuously higher in the Eurozone and the European Central Bank is yet to act. In the last two weeks, the feeling in the market is that there could be a significant move from the European Central Bank with a potential rate hike announcement. We have seen a more hawkish approach in recent meetings compared to their historical stance of being relatively slow with rate hikes, and thus the euro could benefit in the coming weeks if this materializes into aggressive rate hikes. EURUSD down 0.04% trading at 1.0423 at the time of writing. Economic data in the UK hasn’t been the most optimistic in the last few months which has put pressure on the pound. A recent survey from the British Chambers of Commerce (BCC) mentioned that 54% of more than 5,700 companies it surveyed between May 16 and June 9 expected turnover to increase over the next 12 months. This is down from 63% in the previous survey and the lowest share since late 2020 when many businesses were under some form of COVID-19 restrictions. Businesses are currently struggling with exponentially increasing costs in their supply chain, as well as a rise in energy costs, which is squeezing profit margins. This coupled with a reduction in spending from the average consumer is a double-edged sword for UK businesses and keeps the pound subdued for now. GBPUSD was up 0.12% trading at 1.2107 at the time of writing.

Expected Ranges

  • EUR/CAD: 1.3409 - 1.3457 ▼
  • GBP/CAD: 1.5575 - 1.5642 ▼
  • AUD/CAD: 0.8769 - 0.8845 ▲
  • USD/CAD: 1.2841 - 1.29 ▼