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USDCAD Breaks Higher But Broader CAD Strength Remains

  • The breakout in USDCAD, first above 1.32 in the days after US CPI strength and just now above 1.34 after yesterday’s Canadian CPI miss, pushes the pair to Sep’20 highs and further into pre-pandemic levels (2019 av circa 1.33).
  • This is however largely a USD story: the BoC’s broad effective exchange rate – where the USD has a 46% weight – remains firmly within the year’s range whilst the CEER ex USD is the strongest from a CAD perspective since 2007.

  • Much of this broader relative CAD strength is down to the EUR (13% weight) and less so CNY (14% weight).
  • Compared to the 11% increase in USDCAD since its Jun’21 low, CAD has appreciated 10% vs the EUR and is largely unchanged vs CNY, helping push the nominal CEER just 3% weaker over the same period and limiting FX passthrough on CPI inflation.

Changes since 1 Jun 2021Source: Bloomberg

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