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An appreciable CPI beat imposed a rather swift knee-jerk reaction in FX, that has been mostly faded. As long as US real yields remain contained due to a very patient Fed, the USD is likely to remain soggy. Meanwhile, USD/CAD is likely to trade with a heavy tone – given a backdrop of a hawkish Bank of Canada and its sensitivity to BEs being the highest in the G10. 1.20 is now the main downside attractor, according to economists at TD Securities.

The total CPI was +0.8% MoM in April

“The CPI rose 0.8% MoM in April, with core up 0.9% MoM, much stronger than expected. The YoY readings rose to 4.2% total/3.0% core, boosted by base effects as well as the latest MoM data.”

“The CAD has persistently held a strong positive correlation with breakevens. Against a backdrop of a hawkish BoC, we’re inclined to think that USD/CAD will trade heavy with the September 2017 pivot (1.2062) already having been challenged.”  

“1.20 will be the main downside attractor and represents key psychological support. The market may be hesitant to break that threshold out of a false hope that Governor Macklem will try to jawbone the currency lower in a speech tomorrow.”

“As long as US real yields remain contained – as they likely will given a very patient Fed – the USD is unlikely to hold onto gains post CPI.”


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