CAD flows: CAD firmer on stronger CPI

Canadian CPI has come in much stronger than expected in all the core measures, even though the headline was in line with consensus at -0.1% m/m. The BoC core measures were 0.3%, 0.3% and 0.2% above the expected levels, and the reported core measure was also 0.3% above consensus at 0.5% m/m. USD/CAD has dropped 25 pips on the news with 10 year yields up 7bps. The CAD has, like the EUR, traded above the level suggested by the yield spread correlation of recent years since the tariff announcement in early April. But higher yields from here are still likely to drive the CAD higher as the market reduces expectations of BoC easing, even if the higher inflation numbers are also potentially a signal of weaker real growth. The USD has started the US session generally firm, but USD/CAD could test 1.39 if the generally USD tone softens.