Assessing the latest inflation data from Canada, economists at TD Securities think that the downside surprise on Consumer Price Index (CPI) should take some pressure off the Bank of Canada.

We will continue to watch risk assets

"Headline CPI surprised to the downside with an 8.1% print in June, falling short of the market consensus for 8.4%, with prices up 0.7% m/m. Details revealed a sharp deceleration in rents and food prices, although positive revisions to May left the average of the BoC's core inflation measures sitting at a new high of 5.0% y/y."

"We would not interpret this as a soft print, but the BoC should be relatively pleased to see inflation miss to the downside after the last few months. However, with inflation continuing to firm on a year-ago basis we do not expect the Bank to take its foot off the gas too much ahead of the September policy decision, especially with core inflation continuing to grind higher."

"FX: The downside surprise on CPI should take some pressure off the BoC but we don't see it moving the needle for CAD. We will continue to watch risk assets, with CAD the most correlated to equities across the FX complex."