Canada’s Consumer Price Index rose by 0.4% month-on-month in April. This was below the expected increase of 0.6%.
The April reading was 0.2 percentage points under the forecast. The data shows slower month-on-month price growth than anticipated.
Softer Inflation Boosts June Cut Odds
This softer inflation number reinforces the trend we have been watching and increases the likelihood of a Bank of Canada rate cut at the June meeting. The market is now pricing in over a 75% chance of a 25-basis point cut, a significant jump from last week. This data point is the key catalyst traders have been waiting for.
The slowdown in inflation is not happening in a vacuum, as we have also seen signs of a cooling economy. First-quarter GDP growth was a sluggish 1.7%, while the national unemployment rate has gradually climbed to 6.1%. This combination of easing price pressures and a weaker job market gives the Bank a clear mandate to begin easing its policy.
Looking back, this marks a decisive shift from the narrative that dominated 2025. Throughout last year, we saw the Bank of Canada hold its policy rate steady at 5% to battle persistent inflation that refused to break. The persistence of that fight makes today’s low reading much more impactful for future policy.
In the coming weeks, we anticipate increased demand for derivatives that profit from falling interest rates. Traders should look at buying CORRA futures contracts, as their value will rise if the Bank of Canada cuts its overnight rate. This is the most direct way to speculate on the Bank’s next move.
Trading Implications Across Markets
This policy divergence will likely put pressure on the Canadian dollar, particularly against the US dollar. We see value in buying put options on the CAD or establishing bearish call spreads to hedge against or profit from a decline. The path of least resistance for the loonie appears to be lower as rate cut expectations solidify.
For equities, lower interest rates could provide a tailwind for the S&P/TSX 60 index. We expect to see bullish positioning through call options on Canadian equity indices and interest-rate-sensitive sectors like real estate and utilities. The prospect of cheaper capital makes these sectors more attractive.
