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USDCAD Holds Bulk Of Climb Ahead Of CAD CPI

CANADA
  • USDCAD has given back only a little of its climb to 1.3448 today, having nudged above initial resistance at 1.3443 (Jan 11 high) but without conviction to test 1.3455 (50-day EMA) in holiday-thinned trade with MLK Day in the US.
  • CAD has seen sizeable outperformance to high beta peers amidst broader USD strength, with the BoC’s business and consumer surveys plus other data including existing home sales and manufacturing & wholesale sales having relatively little sway.
  • Tomorrow sees CAD CPI for the last major steer before next week’s BoC decision (barring a large surprise in retail sales), playing the key role in guiding market expectations of the tone/forecasts to expect with a first cut currently seen coming in April.
  • GS also look for an April cut, giving “the Bank enough time to remove the hiking bias from the statement and refresh its projections. The path remains uncertain, but with the first cut at least in line with our expectations, we think that the broader cyclical backdrop should remain the most important driver of CAD. With FCI likely to ease on equity strength rather than lower rates, the higher beta G10 currencies like CAD should be among the top performers, although CAD this tends to be a slightly-less-positive environment for CAD (compared to AUD, for example) than a “higher-for-longer” type of Fed policy backdrop.”

USDCAD including 50-day EMA (pink line)Source: Bloomberg

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