Economists at Commerzbank discuss CAD's outlook ahead of Canadian inflation data.

Uncertainty about inflation developments is high

Uncertainty about inflation developments is high, as the recent surprises in data publications – not just in Canada – have shown. Against this background, it makes sense to remain flexible. That means that the data publications play an important role, as they will affect future monetary policy actions decidedly.

If today’s inflation data surprises to the upside like the April data, speculation about a further rate hike in July is likely to increase. At present this step is not yet priced in completely. That might provide additional support to CAD against USD, as the market is a little more skeptical regarding further Fed rate hikes compared with the BoC.

See – Canada CPI Preview: Forecasts from six major banks, inflation expected to decelerate sharply in May