Limited Loonie’s downside potential ahead of inflation data – Commerzbank

Today’s inflation data from Canada poses few risks for the Loonie, in the opinion of economists at Commerzbank. 

Threat of a rate pause

“Consensus expects a small fall in the rate of inflation. A result in line with expectations or below is likely to support the case for a rate pause to assess how the real economy has absorbed the tightening so far.”

“A surprise on the upside would cause doubts in the rate pause and support the expectation that the rate pause will be short-lived. As a result, the Loonie could even appreciate.” 

“Already now the swap market is pricing in a high likelihood of a further rate hike in the summer. The risk that the BoC will stick to the rate pause if it emerges that inflation is more stubborn than expected is clearly seen to be smaller. That limits the Loonie’s downside potential.”

See – Canadian CPI Preview: Forecasts from six major banks, downward path could see a minor detour