USD/CAD flows: CPI data set aside on run in to the key trade event risk
CPI data firmer, supporting message from recent real economy data
CAD however circumspect on the run in to the trade deadline, talks seen going to wire
USD/CAD somewhat checked compared to some other dollar pairs today, albeit still just about continuing its steady slip back towards 1.38.
Indecision is reasonable given the impending trade tariff talk deadline this week. With talks seen going to the wire as both US and provinces prove reluctant to budge on hard demands, it's hard to be overly committal. As such, while Canada CPI data somewhat firmer, data is tended to be ignored for now. Everything else constant, the figures would be backing up the message from the real economy side, suggesting that things have firmed back up from the soft patch at the turn of the year, which would be material to the overall BoC picture. But with such a binary and impactful event imminent, it’s a waiting brief early week.
The overall backdrop does remain the same though. Namely, that this risk event has resulted in extreme short CAD positioning, as hedging and spec positioning. And as such, in the event of good news or even a can kick, CAD would be well primed for a further squeeze.