Canadian Dollar Hinges on Upcoming CPI Release

The upcoming Canadian Consumer Price Index (CPI) release will test the Bank of Canada's warning that upside inflation risks have increased. According to BBH's Elias Haddad, a core inflation reading above 2% would strengthen the case for a 25 bps rate hike to 2.50% on October 28 and support the Canadian Dollar (CAD).

Headline CPI is expected to remain at 3.0% y/y, while core measures are seen hovering around 2%. A reading above 2% would reinforce the case for a BoC rate hike, while a reading at or just under 2% could prompt a modest dovish repricing.

The Bank of Canada projects headline CPI at 2.5% y/y and core CPI (average of trim and median) at 2.0% y/y over Q3.