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Analysts at TD Securities note that the Canada’s CPI inflation was much stronger than expected in July at 3.0% y/y, with prices up 0.5% m/m (market: 0.1% m/m, 2.5% y/y) on a transitory lift from airfares and travel services. Core measures were little changed at 2.0% y/y on average.

Key Quotes

“While certainly eye-catching, we think the transitory nature of the upside surprise and stable core inflation will allow the BoC to look through this print.”

“The bar for a September hike might be slightly lower following the data, but the BoC will be more focused on the GDP figures later this month.”

“We still look for the Bank to lift rates next in October.”

FX: The headline beat triggered a notable bid in the CAD, but with transitory factors at play and the underlying core measures stable, we think the edge in CAD may come off a bit.

Nonetheless, the narrative of a September hike may continue to percolate in the market but we rather view activity data later this month as the true barometer for CAD direction.”