The Bank of Canada (BoC) looks set to face a hike/no-hike dilemma at next week’s policy meeting. Today’s CPI read will be key. Economists at ING expect USD/CAD to edge lower toward 1.31-1.33 barring a surprise golf by the BoC.

Inflation key for BoC January move

“Consensus expectations are centered around a deceleration in headline inflation from 6.8% to 6.4%, and from 5.0% to 4.9% in the core (median) rate. Any signs of resilience in inflation would likely see markets fully price in a 25 bps hike in January.” 

“Below-consensus reads should support CAD short-dated bonds, but it seems hard that investors will completely rule out a hike next week.”

“The impact on CAD should be quite visible in both directions, although external forces should remain the key drivers on the Loonie.”

“Building USD weakness may favour a USD/CAD contraction to 1.31-1.33 in the coming weeks, although a surprise hold by the BoC is a clear upside risk for the pair.” 

See – Canadian CPI Preview: Forecasts from six major banks, inflation steering into calmer waters