CAD Inflation Key for the Bank of Canada Next Week

In their last rate meeting the Bank of Canada highlighted their confidence that inflation was falling. However, they did see that core inflation was stickier globally and that the service sector was showing persistent price pressures. See here for details on their last meeting.

CAD reaction to Canadian inflation data from April 18

On April 18 Canadian inflation data printed with a mixed picture. The core y/y reading was lower than the 4.4% expected at 4.3%, but the m/m reading was higher at 0.6% vs the 0.4% expected. The median fell to 4.6% form 4.8% y/y and the trimmed mean was reassuringly lower too at 4.4% vs 4.8% expected. See the data release here from the Financial Source economic data tracker.
The reaction to this was that the CAD weakened out of the print sending the USDCAD higher.

So, for the CAD inflation data on Tuesday May 14, look for a different outcome to surprise markets. Interest rate markets are pricing in a 94% chance that the BoC will keep rates on hold on June 07. They also see the BoC cutting interest rates once this year. So, this means that a surprise will be higher inflation data than the market is expecting. If inflation comes in above economists maximum expectations then watch for CAD upside. FX traders would look to pair the CAD with a weaker currency on the day to take advantage of any potential CAD upside.