Key Market Events to Watch: US CPI and Bank of Canada Rate Decision
Article published on December 11th, 2024 – 8:24AM UK Time
Key Market Events to Watch: US CPI and Bank of Canada Rate Decision
1. US CPI Report (13:30 GMT)
- Impact of Weak Inflation: If the CPI data comes in below expectations, it would increase the likelihood of a December Fed rate cut, pressuring the USD downward and supporting risk assets. Key thresholds to watch:
- Core CPI (MM, SA): 0.1% or lower
- Core CPI (YY, NSA): 3.1% or lower
- Headline CPI (MM, SA): 0.1% or lower
- Headline CPI (YY, NSA): 2.5% or lower
- With weak inflation and revisions in line with headlines, expect USD/JPY selling and EUR/USD buying to dominate market flows. The S&P 500 could also see support, but traders should approach cautiously.
- Impact of Strong Inflation: Conversely, a hotter-than-expected inflation print would reduce the odds of a December Fed rate cut, boosting the USD. Watch for theses:
- Core CPI (MM, SA): 0.4% or higher
- Core CPI (YY, NSA): 3.4% or higher
- Headline CPI (MM, SA): 0.3% or higher
- Headline CPI (YY, NSA): 2.9% or higher
- Strong inflation data would likely trigger EUR/USD selling and temper rate-cut expectations, potentially limiting upside for risk assets like the S&P 500.
2. Bank of Canada (BoC) Rate Decision (14:45 GMT)
The Bank of Canada is widely expected to cut rates by 50bps, with STIR markets pricing a 95% chance of such a move following weak labor market data from December 6th. Unemployment has risen sharply (6.8% vs. 6.6% expected), supporting economists’ forecasts of aggressive easing. A Reuters poll shows 21 out of 27 economists predicting this half-percentage-point cut.
- 50bps Cut (Base Case): A 50bps reduction aligns with expectations and would further weaken the Canadian dollar as BoC policies diverge from the Federal Reserve’s relatively less aggressive approach.
- 25bps Cut (Surprise Scenario): A smaller-than-expected 25bps cut, potentially justified by strength in consumer spending or resilience in the real estate sector, could surprise markets. In this case, expect immediate CAD strength, with USDCAD sellers likely dominating.
- 75bps Cut (Unlikely Scenario): Though improbable, a sharper 75bps cut would signal significant concern over the labor market’s deterioration and push the CAD lower. This outcome would likely prompt USDCAD buyers and reinforce the dovish outlook for Canadian monetary policy.
Market Implications
Today’s events are pivotal for shaping near-term market sentiment. The US CPI report will dictate the Fed’s rate expectations and USD flows, while the BoC’s decision will highlight how far it is willing to go to address domestic economic weakness. Traders should remain alert to deviations from baseline expectations, as they could spark significant volatility across FX and equity markets.