Canada CPI Preview: Any CAD sell-off on a cooling headline print will be short-lived – Scotiabank

USD/CAD tests low 1.31 area ahead of Canadian CPI report. Economists at Scotiabank analyze the pair’s outlook.

Trends remain CAD-positive

May CPI data is expected to show a 0.4% (consensus) gain in the month (Scotia 0.5% MoM) for a 3.4% rise over the year. 

While the deceleration in the YoY pace of inflation will be gratifying for policymakers – to some extent – monthly headline price gains remain chunky and, more particularly, progress on core inflation has been slow. 

The core median measure is expected to slow only to 4.0% in May, from 4.2% in April and higher frequency measure of core prices have recently suggested that core pressures are, in fact, picking up again. These are details that may not be immediately obvious with the headline release which may mean any CAD sell-off on a cooling headline print will be short-lived and likely reverse if the core measures remain elevated. 

CAD trends look positive on the crosses and there is potential for further, broader gains in the CAD in the near term.

See – Canada CPI Preview: Forecasts from six major banks, inflation expected to decelerate sharply in May