Economists at ING analyze how Canadian inflation data could impact USD/CAD and BoC’s rate hike expectations.
Canadian CPI may put a BoC hike back on the table
Any upside surprise in the inflation figures would likely put a BoC rate hike back on the table, even though it is not our base case at the moment to see another BoC move.
Markets are pricing in 15 bps to a peak, and we could see that being pushed to 20 bps or higher after a strong CPI read today.
Given its stretched overvaluation, we had been calling for a correction in USD/CAD for a while: the pair is reconverging (i.e., dropping) with short-term fundamentals now, and a potential post-CPI rally could see it slip further to 1.3400.
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