CAD: Look for headline CPI inflation to firm to 1.5% in October - TDS

Research Team at TDS, suggests that the Canada’s October CPI inflation will be widely watched for any signs of further deceleration in core inflation following the Bank of Canada dovish shift over the last few months and an empty US calendar should allow markets to react accordingly.

Key Quotes

“Though the Bank sees the risks around their recently-revised inflation outlook as roughly balanced, we remain of the view that downside risks linger. In November, we look for headline CPI inflation to firm to 1.5% y/y on energy prices but core prices (CPIX) should remain subdued on an adjusted basis. We expect core inflation to remain stable at 1.8% y/y, reflecting a seasonally adjusted 0.2% m/m increase with downside potential as inflationary pass through from import prices has virtually been drained. Note, however, this figure will draw less attention as the Bank of Canada has shifted toward three alternative core measures, which will not be published by Statistics Canada until the CPI release next month. However, Statistics Canada will provide further insight towards the methodology and calculation of the new core metrics along with October CPI data on Friday.”

Foreign Exchange

“Price action in USDCAD in recent sessions has been on the heavier side. Taken in conjunction with the risk of a slightly stronger headline CPI print (on the m/m figure) and the BoC's shift away from CPIX, has us biased to modest downside in USDCAD. Initial level of support should be 1.3350 followed by the figure. We think the latter would require a more substantial pullback in the broad USD however.”