USD/CAD: Large surprise in Canadian CPI needed to lift the loonie – Credit Suisse

Today’s Canadian Consumer Price Index (CPI) data will offer markets the opportunity to recalibrate their expectations for Bank of Canada (BoC) policy, ahead of next week’s rate decision. A very large surprise is needed for CAD to overcome its disadvantage versus the USD, economists at Credit Suisse report.

End-Q4 target in USD/CAD is 1.41

“Expectations are set for a further -0.1% MoM decline in headline CPI (from -0.3% MoM in Aug), but the performance of the previously lightly observed trim core CPI and median core CPI indicators will also attract attention, given the recent focus on them in BoC Governor Macklem’s speech. Expectations on that front are for effectively unchanged readings (5.2% YoY and 4.8% respectively in Aug).”

“A much stronger than expected surprise in the inflation data is likely needed for markets to consider the possibility of the BoC hiking 75 bps at the 26 Oct meeting (vs ~55 bps priced in). In absence of that, the path of least resistance in USD/CAD will remain to the upside, towards our end-Q4 target at 1.4100.”

See – Canadian CPI Preview: Forecasts from seven major banks, signs of easing price pressures?