Scotiabank’s strategists Shaun Osborne and Eric Theoret report that USD/CAD is trading around 1.3773 as the Canadian Dollar (CAD) underperforms following a downside Consumer Price Index (CPI) surprise. They note the data keep the Bank of Canada (BoC) on hold even as global price pressures loom, while front-end spreads widen and the pair trades more than one standard deviation above its fair-value estimate near 1.3567.

CAD pressured after soft CPI

"The CAD has failed to pick up any of the positive sentiment that has lifted the MXN, AUD and NZD even modestly so far today. Yesterday’s CPI data surprised on the downside and continues to weigh on the CAD. There was unexpected softness in some categories (services, for example) helping dampen prices and overwhelm significant gains elsewhere (core goods). "

"The data point to the Bank remaining on the policy sidelines for now but rising global price pressures are unlikely to pass Canada by in the months ahead."

"Front-end swap spreads have widened and our estimate for the CAD’s fundamental equilibrium has drifted a little higher today (1.3567). The USD remains significantly (more than one standard deviation) above its fair value estimate, however."

"Bullish—USD gains through the 50% retracement resistance (1.3758) derived from the March 31/May 1 decline in funds support the near-term outlook for more USD strength towards 1.3800/15. Yesterday’s CPI data surprised on the downside and continues to weigh on the CAD."

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