Monday's core consumer price index will be key to the Bank of Canada's rate outlook amid persistent trade uncertainty with the US, according to TD Economics in a note.
While the BoC has cited rising US trade frictions as a potential reason to cut rates, recent data have underscored the resilience of the Canadian economy, pushing Canadian yields higher and narrowing the spread with US two-year borrowing costs by more than 20bps to its tightest level since June, wrote TD in Friday's note.
Canada is scheduled to release the CPI data for July at 8:30 a.m. ET Monday.
July's CPI release could take on added significance if an update on trade negotiations comes at the same time, added TD. Headline annual inflation is expected at around 2.9%, largely reflecting higher gasoline prices, but markets are likely to focus on the core measures.
Given the stronger-than-expected recent economic data, an upside surprise in core inflation could push near-term yields higher.
CPI will offer a snapshot of the economy ahead of Wednesday's deadline for the latest US tariffs, but the outlook will ultimately hinge on whether the latest round of trade talks can avert another trade shock, according to TD.