CAD: Focus on CPI data as oil rally fades - ING

With sentiment over a Jan-18 BoC rate hike still mixed (markets are pricing in 40% odds), this week's Oct CPI report (Fri) will dominate the domestic agenda, feels the research team at ING.

Key Quotes

 “Governor Poloz's latest speech defended the central bank's optimistic inflation projections - which continues to primarily attribute the deviation from target to "other" factors. With the lagged effects of the summer CAD rally also to factor in, the inflation outlook is set to get worse - before it gets better. The macro fallout from tighter local financial conditions should keep the BoC on hold in 1Q18, meaning that some trivial CAD downside is still likely.”

“Providing support to CAD has been the rally in oil prices. Yet, actual upside may be limited for 2 reasons: (1) the correlation between Petro FX and crude is weaker under supply-driven oil shocks; and (2) Western Canada oil hasn't moved as much as Brent or WTI. NAFTA renegotiations also resume this week, though the noise may be more of a concern for MXN markets (rather than CAD). We believe the OECD PPP fair value estimate of 1.27 will serve as a medium-term anchor point for USD/CAD - and retain a neutral bias around here.”