US and Canadian dollars, interest rates, and inflation

US CPI and FED meeting

🇺🇸 Yesterday, the US Consumer Price Index was released for the month of March.
Consumer price, Core CPI index monthly changes and net consumer price index annual benchmark all had a uniform decrease.
The decline of the headline index in the monthly and annual criteria is a positive point, but the stubbornness of net consumer spending is a negative point in relation to dealing with inflation.
After the release of the report, Fed Funds futures are pricing around 60% for a 0.25% interest rate hike at the May meeting, compared to 75% before the release. CPI report was much anticipated.

We also had the $32 billion auction of ten-year US bonds. A weak 10-year Treasury auction has failed to show strong demand for bonds despite the release of promising inflation data, and participants are likely to be cautious ahead of the release of FOMC minutes.
The top yield of 3.455% lowered WI by 0.02, which is not as bad as last month’s 0.27%, but worse than the average of 0.013 over the past six auctions.

FOMC meeting

In response to the meeting minutes, some reaction of Dawish can be seen in the market, however, considering that after the March meeting, several members of the Federal Reserve talked about the economy and banking conditions, there is no new point in the meeting minutes.

Bank of Canada, interest rate decision

🇨🇦 As expected, the Bank of Canada kept its interest rate unchanged at 4.5%.

The quantitative contraction continues to complement this restrictive stance.

The Governing Council continues to assess whether monetary policy is sufficiently restrictive to ease price pressures and remains ready to raise the policy rate further if needed to return inflation to the 2 percent target.

The Bank remains steadfast in its commitment to restoring price stability for Canadians.

CPI inflation is expected to decline rapidly to around 3 percent in the middle of this year and then gradually decline to a target of 2 percent by the end of 2024.

Recent data reinforce the Board of Governors’ confidence that inflation will continue to decline over the next few months.

However, returning inflation to 2 percent may be more difficult as inflation expectations are slowly falling, service price inflation and wage growth remain high, and corporate pricing behavior has yet to normalize.

By determining monetary policies, the Governing Council will focus especially on these indicators and the evolution of core inflation to measure the progress of CPI inflation to the target.