Brown Brothers Harriman’s (BBH) Elias Haddad points out that USD/CAD slipped back below 1.3700 ahead of Canada’s February CPI release. Consensus expects headline inflation to fall on base effects, leaving core near mid-2% levels. Haddad argues that Canada’s relatively stable inflation backdrop gives the Bank of Canada some room to look through the Oil price shock despite weakening labor market data.

Stable CPI eases oil shock pressure

"USD/CAD dipped back under 1.3700."

"Canada February CPI is due today (12:30pm London, 8:30am New York). Consensus see headline CPI dropping to 1.9% y/y vs. 2.3% in January due to favorable base effects. Core CPI (average of trim and median) is expected at 2.35% y/y vs. 2.45% in January."

"For reference, the Bank of Canada (BOC) projects headline and core inflation to average 2.0% y/y and 2.5% y/y over Q1, respectively."

"Canada’s stable inflation backdrop gives the BOC a small cushion to look through the oil-price shock and refrain from raising rates in the face of a worsening labor market."

"Canada’s economy lost -83.9k jobs in February vs. -24.8k in January, concentrated in full-time positions, and the unemployment rate rose 0.2pts to 6.7%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)