CAD: CPI today ahead of tomorrow's BoC – ING

The CPI print in Canada this afternoon can swing expectations for tomorrow’s Bank of Canada meeting, OCBC's FX analysts Frances Cheung and Christopher Wong note.

USD/CAD can continue to trade below 1.40 for now

"Consensus is for a tick higher in March inflation, both on the headline (from 2.6% to 2.7%) and core measures (median and trim rising to 3.0%). If inflation doesn’t surprise on the downside, markets may consolidate the marginally prevalent view that the BoC will stay on hold tomorrow, which is also our call."

"Still, the BoC and Canadian inflation should remain a secondary driver to global equities and the USD’s confidence crisis for USD/CAD. We estimate USD/CAD is trading 2% below its short-term fair value. That is entirely in line with the idiosyncratic risk premium on the USD due to recent turmoil in US markets."

"As discussed above, we don’t think there will be a rapid unwinding of that risk premium, so USD/CAD can continue to trade below 1.40 for now. A hold by the BoC would help sustain CAD gains, even if it won’t be a game changer."