CAD: Inflation is almost as expected, further interest rate cut ahead – Commerzbank

Yesterday's Canadian inflation figures were broadly in line with expectations, Commerzbank's FX analyst Michael Pfister notes.

BoC is likely to focus more on the weakening real economy

"The only deviation from expectations was the headline rate, which was slightly lower than anticipated due to volatile components. As expected, the trimmed mean, which excludes volatile components, declined. We do not expect this to significantly alter the Bank of Canada's outlook. While the headline rate has remained below 2% year-on-year for several months, core measures have remained around 3%."

"At its meeting today, the BoC is likely to focus more on the weakening real economy. The labour market has weakened significantly in recent months, growth is not particularly impressive, and although some sentiment indicators have recovered somewhat from the massive slump in spring, there is still a long way to go before sentiment is positive again. We therefore expect the BoC to cut interest rates by 25 basis points today."

"However, as this has already been priced in, the decision itself is unlikely to have much impact on the CAD. It is only if further interest rate cuts are hinted at in the coming months that the CAD is likely to come under greater pressure."