Economists at Société Générale analyze USD/CAD outlook following Canadian June CPI data.

Bank of Canada has yet to cool core inflation

Canadian CPI slowed to 2.8% in June, falling more than the 3% consensus. However, the two metrics of core inflation followed by the Bank of Canada have been slower to fall, currently averaging 3.8%, 1 percentage point above headline inflation, which is pressured by base effects and lower energy prices. 

This could prompt further BoC tightening and cause the US/Canada rates differential to head south, leading to a gradual decline in USD/CAD.