Canada CPI, U.S. Tariff Deadline Set Busy Week for Loonie
Canada CPI Monday, U.S. tariffs Wednesday. Headline seen at 2.9%. Core near 2%. Tariffs hit 0.4% of GDP. Loonie faces two-way risks.
Alpha Score of 67 reflects moderate overall profile with strong momentum, strong value, weak quality, moderate sentiment.
Canada’s Consumer Price Index for July lands Monday. U.S. Section 338 tariffs on about 5% of Canadian exports take effect Wednesday. Together, they give the loonie its busiest stretch in weeks.
Headline inflation is expected to tick up to 2.9% from 2.8% in June, driven by a reacceleration in energy prices, according to AlphaScala analysts. Oil prices remain below their April and May peaks. They bounced in July as the Middle East conflict disrupted Strait of Hormuz shipping. Gasoline prices averaged 25% above a year ago last month, up from a 20% year-over-year gain in June.
The pass-through from energy to broader consumer prices has stayed limited. Airfares still run hot. “Core” measures hover near the 2% target. In July, prices excluding food and energy likely edged up to 1.9% from 1.8%. The Bank of Canada’s preferred median and trim gauges probably held around similar rates. Food price growth eased. It remained above 3%.
The bigger catalyst may be Wednesday’s tariff deadline. The U.S. is set to apply Section 338 duties on a small slice of Canadian exports – apparel, electrical equipment, and appliances – worth about 0.5% of U.S. imports from the world. For the U.S. economy, the impact is negligible. For Canada, the tariffs target roughly 0.4% of GDP and jobs, AlphaScala analysts said. The deadline has fast-tracked trade talks between Ottawa and Washington. A full resolution before Wednesday looks unlikely.
Even with the new duties, some 80% of Canada’s exports to the U.S. remain duty-free under CUSMA exemptions. That should cap the broader damage to an economy expected to strengthen through the second half of the year.
The week’s two events point in opposite directions for the loonie. A hot CPI print would keep the Bank of Canada on hold, a positive for the currency. The tariff overhang pulls the other way. The August 19 deadline concentrates both risks.
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