Canada’s inflation rate is expected to accelerate in September, with fresh data due Tuesday that could shape the Bank of Canada’s (BoC) next policy move. According to economists, core inflation remains well above the BoC’s 2% target, keeping pressure on the central bank ahead of its rate decision on October 29, when it is widely expected to cut rates by 25 basis points to 2.25%.
Inflation Outlook
Analysts forecast headline Consumer Price Index (CPI) inflation to rise by 2.3% year-over-year in September, up from 1.9% in August. On a monthly basis, prices are expected to fall by 0.1%, matching the decline seen in the previous month.
The BoC will be closely watching its preferred core inflation measures—Trimmed, Median, and Common CPI—which strip out volatile components like food and energy. In August, the core rate climbed 2.6% year-on-year, signaling persistent inflationary pressure despite recent monthly stability.
BoC Cautious as Inflation Risks Linger
At its last meeting in August, the BoC reduced its benchmark rate to 2.50% and struck a cautious tone. Governor Tiff Macklem noted that while inflation had moderated somewhat, risks remained. The bank reaffirmed its data-dependent approach, choosing to assess conditions “one meeting at a time.”
A key concern remains the potential for US-imposed tariffs to increase domestic prices, adding another layer of complexity to the inflation outlook and the central bank’s policy path.
Market Impact and USD/CAD Outlook
Markets will be focused on the CPI release due Tuesday at 12:30 GMT. A stronger-than-expected reading could delay further rate cuts and provide short-term support for the Canadian Dollar (CAD). However, the CAD has recently weakened to multi-month lows against the US Dollar (USD).
Senior Analyst Pablo Piovano (FXStreet) notes that USD/CAD remains in a consolidation phase near the critical 1.4000 level. The pair continues to trade above the 200-day simple moving average (SMA) at 1.3960, suggesting further upside is possible.
If bullish momentum continues, USD/CAD could challenge the October high at 1.4080 and possibly retest the April peak at 1.4414. Key downside support lies at the 200-day SMA (1.3963), followed by the 55-day (1.3861) and 100-day SMAs (1.3781). A break below these levels could open the door to the September low at 1.3726 and potentially the July trough at 1.3556.
Technical indicators also point to a bullish trend: the Relative Strength Index (RSI) is near 66, while the Average Directional Index (ADX) stands above 36, indicating strong market momentum.
Understanding the US-China Trade War
What is a trade war?
A trade war refers to a conflict between countries where each imposes tariffs or other trade barriers on the other’s goods, raising import costs and disrupting global commerce.
Background of the US-China Trade War:
The US-China trade war began in 2018 under President Donald Trump, who imposed tariffs on Chinese imports over claims of unfair trade practices and intellectual property theft. China retaliated with tariffs of its own, sparking a prolonged economic standoff. A partial agreement—the Phase One deal—was signed in January 2020 but tensions remained.
Current Status – Trade War 2.0:
With Trump’s return to office in 2025, tensions have reignited. He has announced a new round of tariffs—up to 60% on Chinese goods—renewing fears of another global trade conflict. This escalation is expected to impact supply chains, dampen investment, and add to inflationary pressures around the world.