CAD falls versus USD following inflation data

Today’s headlines

What’s happening: The Canadian dollar fell against the US dollar this morning as investors digested the latest inflation data.

What happened: Canada’s latest core inflation eased concerns around the country’s central bank hiking interest rates.

Strength in the US dollar and lower crude oil prices also weighed on the loonie this morning.

Why it matters: Headline inflation in Canada accelerated to 2.8% in April from 2.4% in the previous month. This marked the highest reading in two years and was driven by surging gasoline prices after the Middle East conflict. Transportation inflation jumped to 7.6%, from 3.7% in the previous month with a 19.2% gain in energy prices.

However, the Bank of Canada’s preferred core inflation fell more than expected to its lowest reading in five years, which indicated easing underlying price pressures except in the energy sector.

The data matched the Bank of Canada’s recent statements about energy-driven inflation being only temporary, which lowered speculations of interest rate hikes this year.

Other data released on Tuesday showed new housing prices in Canada fell 0.4% in April after a 0.2% decline in March.

Canada’s building permits surged 10.3% to C$13 billion in March, recovering from a 7.8% plunge in February.

Meanwhile, surging inflation in the US has led to investors scaling back speculations of rate cuts by the Federal Reserve this year, while some expecting a hike before yearend.

Strength in the US dollar weighed on the loonie. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.1% to 99.39 this morning.

Lower prices of crude oil, one of Canada’s major exports, also exerted pressure on the Canadian dollar. Spot price for Brent crude fell around 0.1% to $108.59 per barrel this morning.

The USD/CAD forex pair rose around 0.1% to 1.3760 this morning.

What to watch: Investors will continue monitoring developments related to the US-Iran conflict. US President Donald Trump issued another warning of resuming attacks on Iran in case its peace terms are not accepted.

Data on retail sales, PPI and raw materials prices from Canada will be released on Friday. Analysts expect Canada’s retail sales to rise 0.5% in April. Producer prices in Canada, which surged 2.4% in March, are expected to rise by 1.3% in April. Canada’s raw materials price index, which jumped 12.0% in March, is expected to rise by 2.8% in April.

The markets today

Home Depot in focus today following the release of quarterly results

Context: Shares of Home Depot rose on Tuesday after the company reported upbeat first-quarter earnings.

Details: Home Depot reported sales of $41.77 billion, up 4.8% year-over-year, topping consensus estimates of $41.53 billion. Comparable sales rose 0.6%, while US comparable sales climbed 0.4% during the quarter.

Net earnings fell 4.2% to $3.29 billion. While adjusted diluted earnings declined to $3.43 per share from $3.56 per share in the year-ago period, the figure came in better than Wall Street expectations of $3.41 per share.

“The underlying demand in our business was relatively similar to what we saw throughout fiscal 2025, despite greater consumer uncertainty and housing affordability pressure,” CEO Ted Decker said.

While stating that consumers remained financially resilient, CFO Richard McPhail highlighted that bigger home improvement projects were being postponed by Americans due to geopolitical concerns.

Management reiterated their 2026 sales growth forecast of 2.5%-4.5% and their adjusted earnings outlook of $14.69-$15.28 per share.

How shares responded: Home Depot’s shares rose 0.9% to close at $302.44 on Tuesday following the release of quarterly results. The stock has tumbled around 14% over the past month.

What to watch: Investors will continue monitoring the ongoing geopolitical concerns, which are expected to impact overall housing demand, and in turn impact the company’s results ahead.

Other Markets: European indices closed mostly higher on Tuesday, with the FTSE 100, DAX 40 and STOXX Europe 600 Index up by 0.07%, 0.38% and 0.19%, respectively, and the CAC 40 down by 0.07%.

The news shaping the markets

US ambassador Tammy Bruce condemned Russia’s threats against Latvia. The news sent the USD/RUB pair slightly higher in forex trading this morning.

The People’s Bank of China kept its key lending rates unchanged at a record low in May, in-line with market estimates, exerting pressure on the USD/CNY forex pair.

Japan’s Reuters Tankan index for manufacturers rose to 8.0 in May from 7.0 in the previous month, which sent the USD/JPY pair lower in forex trading this morning.

Colombia’s trade deficit shrank to $0.84 billion in March from $1.20 billion in the year-ago month. Growth in exports outpacing imports exerted pressure on the USD/COP forex pair.

Eurozone’s trade surplus fell to €7.8 billion in March 2026 from €34.1 billion in the year-ago period. Exports declining 5.5% to €265.3 billion sent the EUR/USD pair lower in forex trading this morning.

What else to watch today

Italy’s construction output (1200 UAE Time), South Africa’s inflation rate (1200 UAE Time) and retail sales (1500 UAE Time), Eurozone’s inflation rate (1300 UAE Time), US MBA mortgage applications (1500 UAE Time), EIA crude oil stocks change (1830 UAE Time) and FOMC minutes (2200 UAE Time), India’s infrastructure output (1530 UAE Time), Turkey’s central government debt (1830 UAE Time), Russia’s PPI (2000 UAE Time) as well as Argentina’s balance of trade (2300 UAE Time).