Bank of Canada’s patient stance and mixed economic data limit Canadian Dollar upside despite softer US inflation and higher oil prices.
The Canadian Dollar (CAD) has seen modest gains against the US Dollar (USD) following weaker US Consumer Price Index (CPI) data and a rebound in oil prices. The 2-year nominal US-CA swap spread suggests potential for further, though limited, appreciation.
Recent performance places CAD among the top G10 currencies since late February, driven by energy price rebounds and terms-of-trade dynamics. However, mixed economic indicators and a sizeable output gap have tempered expectations for near-term BoC rate adjustments.
The Bank of Canada is expected to maintain its cautious approach, emphasizing weaker inflation and economic uncertainty. This stance may constrain CAD upside, despite supportive external factors like oil prices and USD softness.