Post-BoC Canadian Dollar Rally Vulnerable To Softening CPI

- Canada Consumer Price Index (CPI) to Slow for Second Month in June.

– Core Inflation to Hold Steady at Annualized 1.3% for Six Consecutive Months.

- Retail Crowd Remain Stubbornly Net-Long USD/CAD Since June 7, When It Traded Near 1.3481.

Trading the News: Canada Consumer Price Index (CPI)

Another slowdown in Canada’s Consumer Price Index (CPI) may tame the sharp depreciation in USD/CAD as it encourages the Bank of Canada (BoC) to adopt a more gradually path in normalizing monetary policy.

Why Is This Event Important:

Signs of softer-than-expected inflation may push the BoC to the sidelines as ‘very strong growth of the first quarter is expected to moderate over the balance of the year,’ and Governor Stephen Poloz and Co. may endorse a wait-and-see approach at the next meeting on September 6 as ‘geopolitical uncertainty still clouds the global outlook.’

Nevertheless, stickiness in the core rate of inflation accompanied by a further expansion in household consumption may encourage the BoC to adopt a more hawkish tone as ‘the output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).’In turn, BoC officials may continue to implement higher borrowing-costs over the coming months as the central bank expect to achieve the 2% target for price growth by the middle of 2018.

Impact that the CPI report has had on USD/CAD during the previous release

May 2017 Canada Consumer Price Index (CPI)