Insights 
VT 
April’s Consumer Price Index Release
Canada observes a holiday on Monday, with markets closed for Victoria Day. The Bank of Canada is set to decide on interest rates on June 4, with various economic data influencing these decisions.
On Tuesday, April’s Consumer Price Index (CPI) numbers are released. The headline month-on-month CPI is projected to be -0.2%, down from +0.3% previously. Year-on-year, the headline CPI is expected at 1.6%, with core measures stable at 2.9% and 2.8% respectively. There’s currently a 64% probability that rates will be reduced by 25 basis points.
Wednesday features a Government of Canada auction reopening for C$3 billion of 30-year bonds. Thursday sees April’s producer price index updates, with prior figures at +0.5% for industrial product prices and -1.0% for raw materials. A speech by BoC Deputy Governor Toni Gravelle might influence June’s rate decisions.
Friday concludes with March retail sales data, with a projected headline month-on-month change of -0.3%, improving from -0.4% previously. There is no consensus yet for sales excluding autos, which previously posted a +0.5% increase. The USD/CAD exchange rate is likely to close the week just below 1.40.
What we’re seeing now is a clear lowering of temperature across several indicators. Inflation pressures at the consumer level continue to cool. The drop in April’s headline CPI, if confirmed at -0.2% month-on-month, would be the softest reading since the pandemic distortions of 2020. Year-on-year inflation drifting down to 1.6% brings the figure much below the Bank of Canada’s 2% target, though the core measures holding near 2.9% suggest some resilience in stickier categories like services and shelter.
Market And Inflation Trends
With the overnight rate still quite restrictive, the bar for keeping rates steady grows higher by the week. The market’s 64% likelihood of a cut in early June now rests on firm footing. Unless CPI or Friday’s retail sales dramatically outperform expectations, that probability may stretch closer to certainty. The comments from Gravelle could sway the tone, but the data are doing most of the heavy lifting now.
The bond auction midweek gives us thirty-year pricing under shifting expectations. Look for long-end yields to show more sensitivity to rate path speculation than short tenors. Should CPI disappoint or retail sales come in below zero again, the curve may steepen a bit as markets price in faster easing.
Price action in the CAD tells us the story clearly—hovering near 1.40 means traders are adjusting toward a softer domestic economy. Local demand is waning, and households are pulling back. The high-for-longer stance once deemed necessary to anchor inflation no longer appears justified if trends continue.
Producer prices, coming on Thursday, might not attract headlines, but they’ll matter more than usual. Industrial product inflation cooling beneath the current +0.5% would reinforce a deflationary tilt in manufacturing and pricing chains. For those positioned on medium-dated vol, shifts in input cost expectations could start nudging forward inflation forecasts.
We should prepare for increased rate sensitivity through early June. Any deviations from forecasts, particularly on Tuesday or Friday, will drive USD/CAD positioning and fixed income volatility. We are likely to see activity pick up in the risk reversal space given the binary feel of the rate cut odds. Adjustments around skew and term structure seem worth exploring as the bank approaches a turning point.
