(Bloomberg) Tomorrow’s CPI report in Canada could open the way for a fresh year-to-date low in the loonie.
The Canadian dollar has been weakening for nine straight days, its longest streak since late July and tomorrow’s data is poised to add more pressure. September’s inflation report is seen falling below 2% for the first time since early 2021, aided by a drop in gasoline prices, according to Bloomberg Economics’ Stuart Paul.
Three-month annualized headline CPI is already at 2%, while core measures are below the 3% upper band of the target range, which should be enough to keep the BOC cutting rates, Paul notes.
With traders pricing in about 39 bps of cuts at the Oct. 23 meeting, a lower-than-expected print could easily tilt the odds on the size of the rate cut toward a half-percentage point reduction.
So while Canada’s appears to be retreating faster than in the US and the Federal Reserve now seen acting in a more gradual manner, yield differentials between the two are poised to widen more. That’s set to keep the loonie under pressure, potentially revisiting its ytd low from August.
USD/CAD could break 1.38 after the inflation report, according to Monex foreign-exchange trader Helen Given, even as the loonie may recover a bit toward year-end.
