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Canadian mortgage rates may fall as soft inflation lowers yields

Canadians looking for some mortgage relief might get some in the coming months. At least those looking for a fixed rate term. This week, the Government of Canada (GoC) 5-year bond yields fell sharply in response to soft American inflation data. Falling yields are part of a broad trend currently driving down mortgage costs. Though how people respond to the return of cheap money may determine whether this trend continues, or inflation is reignited. 

Canada’s biggest trade partner has a big influence on domestic prices north of the border. American inflation is quickly exported via this trade process. In addition, since most commodities are priced in US dollars, a strong Greenback can drive the cost of goods higher in Canada. Consequently, their inflation data can lead to a big shift in Canadian inflation expectations.

America’s softer than expected Consumer Price Index (CPI) this week was good news for Canadian borrowers. Annual CPI growth fell 0.5 points to 3.2% in October, within spitting distance of the target range. 

CPI still has some distance to travel but it is coming down fast. Experts still delayed their forecast for the first rate cut by another month, now expected in July 2024. 

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