Canadian Dollar: Soft inflation supports extended BoC pause – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad looks for Canada June headline Consumer Price Index (CPI) to slow to 2.9% year-on-year, with core measures near 2%. With inflation anchored around the Bank of Canada’s (BoC) target, swaps price less than a 50% chance of a 25 bps hike by year-end and only 50 bps of tightening over twelve months, leaving policy near the midpoint of the estimated neutral range.

Anchored CPI a headwind for Canadian Dollar

"Canada June CPI (Monday). Headline CPI is seen at 2.9% y/y vs. 3.2% in May on lower gasoline prices, core CPI (ex. food & energy) is expected at 1.7% y/y vs. 1.6% in May, and core CPI (average of trim and median) is projected to remain at 2.05% for a third straight month."

"Core inflation remains anchored near the Bank of Canada’s (BoC) 2% target, supporting an extended pause which is a headwind for CAD."

"The swaps curve price in less than 50% odds of a 25bps rate hike by year-end and 50bps of tightening over the next twelve months to 2.75% - the mid-point of the BoC’s estimated neutral range (2.25%-3.25%)."