The Canadian dollar is weakening against the U.S. dollar ahead of an inflation reading from Canada, which will be announced at 1:30 pm GMT. The Bank of Canada recently announced the formal end of the 4.5% hike cycle (a 25 bp decision). The reading will show whether, in view of problems with the dynamics of a further decline in inflation in the USl, the BoC's decision to pause the cycle was premature. Analysts' consensus points to a CPI reading of around 6.1% vs. 6.3% previously, with an estimate of 5.1% for core inflation.
Wells Fargo expects Canadian inflation to fall as low as 6% in January as pressure from high energy prices wanes. The bank also expects the BoC to maintain a dovish stance over the next few quarters and to be one of the first central banks to decide to cut rates perhaps in the fourth quarter of this year, in the face of deteriorating economic conditions. A stronger-than-expected drop in CPI to 6% is also expected by TDS. The rental market, service prices and gasoline are likely to remain key drivers of inflation, while home furnishings and clothing should weigh on the reading. Citibank analysts indicated that the core inflation reading will be key, however. While CPI inflation may fall slightly primarily due to the high base effect, the risk remains that Canada's core inflation will stabilize in the summer at excessive levels of 3 to 4%.
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Open account Try demo Download mobile app Download mobile appUSDCAD is weakening ahead of the reading, although bears may try to push the pair back below the 1.347 levels, which coincide with the SMA200 (red line), the 23.6 Fibonacci retracement of the upward wave started in mid-February and the local peak of February 16. Sellers may be stronger if the reading (like recent US data) indicates a lower rate of inflation decline. The level of 1.347 may be crucial for the bulls to hold.
Source: xStation5
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