CAD: Punching above its weight; a CPI miss would provide a reality check - ING

According to analysts at ING, today's CPI and retail sales data of Canada will provide the first big litmus test for the BoC-driven CAD rally.

Key Quotes

“The central bank hiked interest rates for the first time in 7 years last week under the impression that low inflation was largely driven by transitory factors; while the headline figure is likely to jump around over the coming months – and may on the surface corroborate the BoC's view – it is the 'common' core CPI reading that remains truest gauge of underlying inflationary pressures. Any slip in this figure today (prior 1.3%) would lead us to question the likelihood of an October BoC rate hike – which markets currently see as a formality. While it is proving painful and difficult to fight the current bullish CAD momentum, we still think the currency is punching above its weight. $/CAD at 1.27-1.28 looks fair to us; today’s data may provide an excuse for a correction back to these levels.”