Canadian inflation much stronger than expected
USD/CAD has slumped in response to the Canadian inflation data this afternoon, with the headline rate at 2.4% - beating estimates of 2.1% and up from 2.0% previously. The trimmed measure was also higher at 2.3% with the median up from 1.9% to 2.1%, while the core rate has recovered from 1.5% to 2.1%. With these kinds of numbers, the BoC can discount any consideration of rate cuts off the table with other domestic data also proving resilient in the current climate.
There is room here for the CAD to outperform the USD going forward and the move down from 1.3380 to circa 1.3350-40 is a very modest one - perhaps too modest - so later on this evening, if the Fed paints a dovish picture as many expect, we could see a stronger move down towards the mid 1.3200's, though last week's lows at 1.3226 will naturally provide some support.
Against the data, there are ongoing concerns over the domestic housing market as well as household debt, so there are sellers here who continue to take a pessimistic view on the CAD based on longer-term metrics which could be more telling further down the line, as well as the correlated risk dynamic which has plagued the AUD and NZD alike.