Canadian Dollar: CPI and US tariffs weigh on outlook – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad expects Canada’s July Consumer Price Index (CPI) to keep core inflation below 2%, reinforcing an extended Bank of Canada (BoC) pause. He flags looming 50% US tariffs on nearly USD 20 billion of Canadian imports as an additional headwind, arguing that anchored core inflation and trade friction leave room for BoC rate-hike expectations to be repriced lower, potentially weighing on CAD.

Sub‑2% core CPI and tariff risks

"Canada July CPI to show underlying inflation contained under 2% (Monday). Headline CPI is seen at 2.9% y/y vs. 2.8% in June, core CPI (ex. food & energy) is expected at 1.8% y/y vs. 1.8% in June, and core CPI (average of trim and median) is projected at 1.85% for a second straight month."

"For reference, the BoC projects headline CPI at 2.5% y/y, and core CPI (average of trim and median) at 2.0% y/y over Q3."

"On Wednesday, unless trade talks yield a breakthrough, the US will impose 50% tariffs on nearly $20 billion in imports from Canada (0.85% of Canada’s GDP). The tariff would apply to a range of products from wine to hockey sticks to cement."

"The tariff will not apply to energy, potash, products subject to tariffs under Section 232, and other goods like fish or critical minerals."

"Bottom line, core inflation anchored below the Bank of Canada’s (BoC) 2% target and ongoing US-Canada trade friction support an extended BoC pause. As such, there is room for BoC rate hikes bets (65bps in the next twelve months) to adjust lower against CAD."

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