USD/CAD soft ahead of key Canada CPI data – BBH

USD/CAD is trading heavy near 1.3700 after peaking at 1.3800 yesterday, BBH FX analysts report.

BOC cut in question as USD/CAD slips to 1.3700

"Canada’s May CPI print will be a key driver of Bank of Canada (BOC) July rate cut expectations (1:30pm London). Headline CPI is expected at 1.7% y/y vs. 1.7% in April while core CPI (average of trim and median CPI) is anticipated at 3.0% y/y vs. 3.15% in April."

"The BOC is concerned that 'underlying inflation could be firmer than we thought' which has dampened expectations for additional rate cuts. The swaps market is pricing in 39% odds of a 25bps cut at the next July 30 meeting. Over the next 12 months, the swaps market implies a total of between 25bps and 50bps of easing and the policy rate to bottom between 2.25% and 2.50%."