USD/CAD to fall back towards the low 1.27 zone on higher than expected Canadian CPI – Scotiabank

The CAD is showing signs of life after the USD pushed above 1.30 last week to reach its highest point since Nov 2020. A hot Consumer Price Index (CPI) data from Canada could drag the USD/CAD pair down to the 1.27 zone, economists at Scotiabank report.

CAD rebound may extend on High CPI

“Canadian CPI data is perhaps an opportunity for economic data to give the CAD some positive momentum. The market consensus for Canada’s May CPI report is for headline inflation to remain unchanged at 6.7% YoY. 

“Our house call is for both the Fed and BoC to raise rates 50bps over their next three policy meetings before moving to 25bps increments. Fed policymakers have rather suggested that 50bps are all but certain to be deployed over the next two meetings only, however. High Canadian inflation data may bolster market expectations that the BoC is more likely to deliver that third 50bps than the Fed.” 

“Assuming USD/CAD can hold in the low 1.28s ahead of the CPI release, a higher than consensus expectations report should help push the pair back towards the low 1.27 zone (where short-term technical signals suggest USD/CAD has the potential to reach in the next few days).”