CAD is likely to struggle to make considerable ground against USD and EUR for now – Commerzbank

The Canadian inflation data for January surprised on the downside and caused the Loonie to trade weaker. Economists at Commerzbank expect the CAD to remain vulnerable against the USD and the EUR.

Some market participants worry that the BoC will drop behind compared with the Fed and ECB

“Some market participants might worry that – in view of a combination of weaker than expected inflation and a significant fall in retail sales – the BoC will drop behind compared with the Fed and ECB; that is putting pressure on the CAD.”

“The Loonie is likely to struggle to make considerable ground against USD and EUR for now, in particular, if weaker economic data reflects the slowing effect of monetary policy tightening in Canada over the coming months.”

“We expect that the BoC will turn out to be hawkish though and that this will also be reflected in its rhetoric in case of a continued tight labour market and/or continued stubborn core inflation levels. That should support the Loonie.”