ING’s Francesco Pesole expects a sharp rise in Canada’s April Consumer Price Index (CPI), but sees limited pressure on the Bank of Canada (BoC) to hike. With core inflation anchored and unemployment higher, he views current OIS pricing as too hawkish and remains cautious on USD/CAD downside, keeping a 1.34 year‑end forecast driven more by anticipated US Dollar (USD) weakness than Canadian Dollar (CAD) strength.

BoC unlikely to turn more hawkish on CPI

"Today’s release of Canada’s April CPI should show a sharp rise in headline inflation, driven by food and gasoline prices. The consensus is looking for a 3.1% YoY print, while core measures (median and trim) should remain anchored around 2.2-2.3%."

"In our view, this implies limited pressure on the Bank of Canada to hike rates for now, especially following the 0.2pp increase in the unemployment rate in April. The BoC has already sounded cautious on tightening prospects, keeping a firm focus on the risks associated with upcoming USMCA renegotiations. "

"We remain cautious on the downside potential for USD/CAD, given potential US-Canada trade tensions this summer and CAD’s low attractiveness in any search for carry once sentiment re-stabilises. Our 1.34 year-end call for USD/CAD remains primarily a mirror of expected USD weakness rather than CAD outperformance versus peers."

"Against this backdrop, the 44bp priced into the CAD OIS curve by December looks too hawkish, reflecting broader global front-end repricing rather than domestic dynamics, in our view."

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