A quickie on Canada inflation and the Canadian dollar, via eFX
Market focus on the Canadian dollar remains elevated following last week's hike by the Bank of Canada, as suggested by the near-parallel move higher in the implied vol curve since the rate decision.
In that regard, CS notes that at the domestic level, with no BoC meeting until September, the focus remains on the data, and this Friday's CPI will be the first important test for the BoC's strong belief, as stated last week, that inflation is due for a surge from the current low levels.
"We maintain a skeptical bias on this front but acknowledge that broader USD dynamics might prove dominant even in the event of a weak inflation print, if the USD were to attempt another broad leg lower," CS adds.
On the technical front. CS notes that if USD/CAD manages to stay above key support level of 1.2461, it will likely triggers a re-emergence of buyers targeting a return for a move back above 1.30.
