Canadian Dollar: BoC patience persists with firmer CPI – TD Securities

FXStreet Insights Team FXStreet

TD Securities strategists note that Canadian headline Consumer Price Index (CPI) for May surprised to the upside, driven by energy and seasonal factors, while core measures remained stable near 2%. They argue this keeps inflation above Bank of Canada (BoC) projections but still allows policymakers to look through headline strength and stay on hold through 2026, with CAD bearishness seen as stretched.

BoC seen staying on hold through 2026

"Headline CPI surprised to the upside at 3.2% y/y in May as prices rose by 1.0% m/m, fueled by another large contribution from energy products along with seasonal tailwinds and some mean reversion in travel-related components. CPI-trim/median were unchanged at 2.0%/2.1% y/y, but firmed to 2.3% on a 3m annualized basis."

"The upside surprise in May leaves CPI tracking further above BoC projections from the April MPR, but we do not see anything in this report to keep the Bank from looking through headline CPI going forward. Core inflation measures are not showing any broad pressures from higher oil prices and indicators of CPI breadth declined from April. We look for the BoC to remain patient and stay on hold through 2026."

"Our views around the BoC remain the same, as the Bank can remain comfortably on the sidelines even as impacts from the war materialize in the data."

"Firmer inflation on the margin is taking some heat off of CAD. CAD bearishness is starting to look stretch and could reverse if Canadian data starts to stabilize. While it is hard to fight near-term USD strength, we like short AUDCAD on the crosses."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD flirts with 0.7000, lowest since early August amid bullish USD

AUD/USD hits a fresh low since early August during the Asian session on Friday and looks vulnerable near 0.7000 after breaking below the 200-day SMA overnight. Against the backdrop of the hawkish Fed, a two-day rally in oil prices revives inflation fears and continues to push US bond yields to multi-year highs. Adding to this, geopolitical risks lift the US Dollar to a two-month high, overshadowing RBA rate hike bets and weighing on the pair.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold treads water below $4,300

Gold grabs some buying attention and advances marginally at the end of the week, partially retracing the weekly decline, although it is still navigating below the key $4,300 mark per troy ounce. The fresh selling bias on the Greenback and the modest decline in US Treasury yields appear to support the humble advance in the precious metal.

Crypto Today: Bitcoin and Ethereum edge lower, XRP extends recovery as macro headwinds weigh

The broader cryptocurrency market is consolidating on Friday, with Bitcoin paring losses slightly above $84,000. Ethereum declines in tandem with BTC. Ripple (XRP), meanwhile, paints a different picture.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Federal Reserve (Fed) and the Bank of Japan (BoJ) have just done something remarkably similar. Both central banks raised interest rates by 25 basis points (bps) last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.