USD/CAD could slip further to 1.34 on a potential post-CPI rally – ING

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.

See – Canada CPI Preview: Forecasts from five major banks, another jump in inflation