USD/CAD: Loonie's positive outlook remains compelling – MUFG

The inflation data released on Wednesday in Canada were on the strong side for sure but there has been limited reaction to the upside surprise. According to economists at MUFG Bank, there is little reason for panic.

USD/CAD close to model implied level

“The scale of upside surprise being relatively modest helps explain the limited reaction as does the fact that the Bank of Canada has already positioned itself as one of the central banks more willing to shift to a more hawkish stance.”

“The positive case for CAD remains compelling but in circumstances of broader USD strength, the scope for USD/CAD declines is limited. Our relative data surprise index versus the US is CAD supportive as are spreads.”

“Our combined Oil/Spread model has turned a little higher but the spot rate remains well within 2 std deviations and the model suggests scope for some USD/CAD decline.”

“Yesterday’s inflation data, while not moving the dial on rate expectations, was still supportive for our positive CAD outlook.”