Dovish CPI backs larger BoC cut
Oct 15 (Reuters) -After a dovish CPI report, the case for a larger cut by the Bank of Canada at its October meeting has increased, with the market now seeing a 69% chance of a 50bp cut, up from a 50/50 split pre-CPI, according to LSEG data.
The recent jobs report had surprised to the topside of expectations and thus leaning in favor of a 25bp cut. With headline CPI at 1.6% and more importantly, the BoC’s preferred measures of underlying inflation – trimmed and median CPI – hovering around the 2% region, markets might see the path of least regret as opting for a 50bp cut in order to catch down with the economy.
While USD/CAD initially rose to a fresh high of 1.3839, the pair is overbought as per RSI. At the same time, bulls have often had little success in maintaining a foothold above 1.38 over the last two years.
Should USD/CAD fall back below the pre-CPI level of 1.3818, this is a potential warning sign for bulls, hinting at topside exhaustion. Keep in mind, that the CAD is among the worst performers month-to-date, with USD/CAD up for 10 consecutive sessions. For now, support resides at 1.38, where a break below would raise the risk of a bull trap.
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USDCAD daily chart https://tmsnrt.rs/4e3x5UZ
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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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