Canadian Dollar: Limited gains against US Dollar on rate bets - ING

Francesco Pesole at ING expects Canadian inflation to remain contained, keeping a December ‘insurance’ rate hike by the Bank of Canada on the table. With markets already fully pricing a 25 bp December move and some odds for October, he sees limited Canadian Dollar upside and maintains a USD/CAD return to 1.420 by month- and year-end.

BoC pricing curbs Canadian Dollar strength

"Canada releases inflation data for September today. The headline rate should accelerate at a 0.2% month-on-month pace, not particularly hot, especially given core measures have remained anchored around 2.0%."

"The jobs market has given some warning signals, with two consecutive negative prints in August and September and the unemployment rate rising to 6.5%. Still, with growth proving resilient and a widening rate spread with the Fed, an (insurance) rate hike in December by the Bank of Canada remains a clear possibility. The BoC also releases its business outlook survey today."

"Markets are fully pricing in a 25bp December hike, as well as 9bp for next week’s meeting. That suggests limited upside for the Canadian dollar, even if the October meeting is used to set the stage for a December move. That is, barring a surprise October hike, although we don’t sense that markets are underpricing here."

"We don’t see much more downside for USD/CAD at this stage, with a return to 1.420 still our baseline for the month-end and year-end."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)