Market Analysis

Inflation Data Leaves CAD Bulls On Horns Of A Dilemma

Canadian inflation (CPI) rose by 1.3 percent in May, Statistics Canada revealed on Friday, below both the 1.5 percent forecast of economists polled by Reuters and April’s 1.6 percent.  The importance of the data had been enhanced by the fact that in the run-up to its release, comments such as from Bank of Canada (BOC) Senior Deputy Governor Carolyn Wilkins had led markets to wonder if a rate hike in Canada might be coming as soon as the next policy meeting on 12 July. The Canadian dollar (USDCAD) had been gaining some traction on that, as well as on last week’s solid Canadian retail sales figures. So, the downturn in Canadian CPI

So, the downturn in Canadian CPI wrongsided CAD bulls. Given the Bank of Canada’s mandate is to target Canadian inflation at 2 per cent, last Friday’s data may well have pushed back the clock on the timing of any BOC hike. But if that proves to be the case, and unless the crude oil price manages more of a sustained rally that underpins the prospects for oil-sand producing Canada, traders may be less inclined to give the CAD the benefit of the doubt. That said, much will hinge on a speech from Bank of Canada Governor Stephen Poloz this week. Traders may well pay close attention to any comments from him when he speaks at a European Central Bank event in Portugal on Wednesday.

Written by Neal Kimberley, External Currency Analyst.