USDCAD, H1
Canada’s CPI through August is consistent with steady BoC policy through year end. CPI dipped to a 1.9% y/y pace in August from the 2.0% y/y clip in July, matching expectations. The core measures held around 2.0%, with CPI-median and CPI-trim at 2.1% y/y from 2.1% y/y and CPI-common slipping to 1.8% y/y from 1.9% y/y. The Bank noted that July CPI was stronger than expected “largely because of temporary factors,” so the slip under 2.0% in August tracks the Bank’s view. Today’s report keeps core inflation near the BoC’s 2.0% target. The economy was operating close to potential in Q2 but some moderation in Q3 and Q4 GDP should free up capacity. The Bank kept policy at the current stimulative setting early this month as “escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies.” While the recent US-China detente is welcome, the trade outlook remains uncertain. The pick-up in oil prices is a net positive for Canada’s economy. Overall, data and events continue to support no change in rates from the BoC, even as the Fed is widely expected to cut rates again today.
US housing starts rebounded 12.3% to 1.364 mln in August after falling 1.5% to 1.215 mln in July (revised from 1.191 mln). This breaks a string of three straight monthly declines and is the fastest pace since June 2007. Starts climbed to a 6.6% y/y pace versus 2.6% y/y previously (revised from 0.6% y/y). Single family starts increased 4.4% after the prior 1.9% gain (revised from 1.3%). But a lot of the strength was in multifamily starts which jumped 32.8% following the 9.2% drop (revised from -16.2%). Building permits increased 7.7% to 1.419 mln, a 12-year high, after rising 6.9% to 1.317 mln (revised from 1.336 mln). The data is much stronger than expected.
The combined data releases saw the USDCAD continue to lose ground, spiking as low at 1.3238 before recovering to 1.3250.
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Stuart Cowell
Head Market Analyst
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