Today’s inflation data in Canada will be key to driving market expectations for the BoC’s July decision. Economists at ING analyze CAD outlook.

Inflation numbers in focus

Consensus is looking for a rather substantial slowdown in headline inflation from 4.4% to 3.4%, while the core measure should decelerate to around 4.0%. We are still inclined to think that the BoC will go for another hike in July, and it may take a sub-consensus read in underlying inflation today to convince them not to.

Either way, with the Fed still threatening to tighten more, it seems hard to fully price out BoC tightening down the road, and CAD – which has the best volatility-adjusted carry in G10 – may not fall out of markets’ favours just yet. 

We still target sub-1.30 levels in the third quarter.

See – Canada CPI Preview: Forecasts from six major banks, inflation expected to decelerate sharply in May