USD/CAD: A return to last week’s 1.3585 highs seems appropriate for now – ING

Canada releases inflation figures for January today. Economists at ING analyze CAD outlook ahead of the data.

USD/CAD can find a bit more support in the coming weeks 

The expected slowdown in the disinflation process is in line with developments in the US and other major countries, and not too concerning for the Bank of Canada which estimates headline inflation at 3.2% in the first quarter of the year. Nevertheless, a tight labour market and the timing of the first Fed rate cut being pushed back means the BoC will likely opt for patience over more dovish guidance in upcoming communication. That is unless today’s CPI numbers surprise markedly on the downside.

USD/CAD can find a bit more support in the coming weeks as we see USD staying strong and risk sentiment fragile. A return to last week’s 1.3585 highs seems appropriate for now. However, we still expect a decline in USD rates to unlock downside potential for the pair in the second half of the year, even with the BoC cutting at the same time as the Fed.