Canada: CPI should return to positive territory at +0.2% y/y in May – TDS

Previewing Wednesday inflation report from Canada, "headline CPI should return to positive territory at +0.2% y/y in May, helped by a sharp recovery in gasoline prices that will provide the driving force behind a 0.8% m/m increase in the headline index," TD Securities analysts said.

Key quotes

"The Canadian CPI probably won't garner much attention for USDCAD, given the heavy focus on external drivers like risk sentiment and equity flows. That said, we think that good Canadian data could support CAD on crosses, especially in the dollar bloc."

"For CAD, it sits in a unique position against its dollar bloc peers, highlighting that both positioning and valuations appear much less stretched. On our HFFV gauge, NZD and AUD are trading 2-3% premiums while CAD looks fairly valued."

"Against that, our positioning tracker CAD positioning sits in the 20th percentile of the past year's range while AUD and NZD sit near the 80th. That implies a seemingly well-positioned view on the antipodes but a short view on CAD. Our trade of the week (TOTW) is short NZD/CAD at 0.8794, while we also hold shorts in AUD/CAD at 0.9350 in our discretionary model portfolio."