CAD flows: USD/CAD higher after CPI, but upside scope modest

While USD/CAD has risen 20 pips to 1.3830 after the Canadian CPI data, the numbers aren’t really sufficiently weak to change BoC policy. The headline measure and all the BoC core measures were in line with consensus, save for common CPI which was 0.1% lower than expected at 2.6% y/y. However. USD/CAD has been edging up in recent sessions, closing in on the levels consistent with current yield spreads based on the correlations that held up before April this year, so there is still scope to 1.39 or maybe a little above in the short term. But the much bigger Fed easing expected over the next couple of years suggests that any near term gains are unlikely to go far or last long, unless we see a more significant deterioration in the Canadian economy which turns the BoC more dovish.