"The CPI data failed to provide the catalyst for the push lower in the CAD that we anticipated Friday. There was no “smoking gun” in the January inflation data that would have given the BoC the cover to adopt an obvious easing bias but the numbers were hardly a significant plus either," says Shaun Osborne at TD Securities.
Nevertheless, Canada still has one of the lowest inflation rates in the industrialised world and the CPI remains at the low end of the BoC’s target range.
"Given the February spike in prices last year, next month’s inflation is more likely to fall back again," says Osborne.
Governor Poloz sounded a little more upbeat in comments made over the weekend, noting that inflation and business creation data were encouraging.
He said that the inflation data did not represent “a fundamental pick up or reversal” in the recent sluggish trend, however.
So, what now?
"There’s a long wait until this week’s data; Q4 current account data will serve as a reminder that Canada’s external position remains weak on Thursday and Friday’s GDP data is expected to show the economy ending 2014 on a sluggish note (industry level GDP is expected to be negative in December while Q4 GDP is likely to be close to BoC expectations (around 2.5%). Not bad, but not great either," says Osborne.
Concerning the outlook for the US Dollar vs Canadian dollar, TD Securities reckon:
"The CAD can probably steady below 1.12 this week and wait for the BoC policy meeting in March for direction. We think the BoC’s policy statement will retain a very dovish bias and see no grounds for a strong rebound in the CAD at this point, especially considering last week’s heavy sell-off.
"We look for USDCAD to consolidate last week’s gains and expect firm support on dips to the 1.1065/75 area near-term. The market may struggle to extend gains through 1.1150 for now."
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