The Canadian Dollar’s (CAD) reaction to the latest inflation print for December was rather muted. Economists at Commerzbank analyze Loonie’s outlook.
The BoC is unlikely to cut rates soon
The figures did not surprise to the extent that the Bank of Canada (BoC) is likely to discuss a rate hike again next week. At the same time, however, the figures confirm our view that the BoC is likely to take a wait-and-see approach and is therefore unlikely to cut rates in the near future.
The market still seems to think otherwise and, despite the surprise, expects the first rate cuts in the spring. Together with the small number of participants, this probably explains the moderate reaction of the CAD.
Given the more hawkish BoC and the fact that core inflation is once again proving surprisingly resilient, we would still be somewhat cautious. Accordingly, we remain comfortable with our forecast of a moderately appreciating CAD even after Tuesday's figures.
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