CACIB: CAD: a temporary break?With a bank holiday in both Canada and the US yesterday, USD/CAD has
consolidated above Friday’s lows of around 1.4150, as the pair broke away from the 1.44 pivot that had prevailed for about two months until last week. The pair nonetheless remains at the mercy of any eventual policy twist from the new US administration, mainly regarding the imposition of tariffs between the two countries as temporary respites are due to expire in early March, but also about geopolitics and its impact on global energy markets to a lesser extent. In this context, today’s Canadian CPI release for January may not attract too much attention, especially as the data has likely been distorted by the two-month break on Canadian sales tax. The BoC expects a more pronounced impact onto headline inflation (down to
1.7% YoY in January), whereas stripping out this temporary holiday, Canada’s CPI would have been on track to rise to a six-month high of 2.5% YoY. Ultimately, only a major data surprise could at this stage alter the bigger picture of Canadian inflation steadying just above 2% in the year ahead, while in any case the BoC’s reaction function may now give a greater weight onto Canada’s medium-term growth prospects, and whether any full-blown trade war could make the negative output gap worse.
