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Canadian Dollar Leads G10 Gains This Week but Oil and US Dollar in Focus, Corpay Says

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The Canadian dollar is poised for its strongest weekly performance among G10 currencies, with the recovery from oversold territory driven by an unwinding of short positions and a test of the USD/CAD 1.40 level in focus, according to Corpay on Friday.

Next week's inflation data is expected to show a monthly decline in headline prices, reflecting lower gasoline costs, while the Bank of Canada's preferred core measures are projected to remain contained, said Corpay.

The muted inflation environment reflects a lack of significant demand-driven price pressures as economic activity remains subdued, wrote Corpay Chief Market Strategist Karl Schamotta in a note.

However, the inflation data is unlikely to have a meaningful impact on the loonie's trajectory, with recent moves reflecting external drivers more than changes in expectations for Canadian monetary policy.

As a softer inflation reading is unlikely to materially affect rate differentials, oil prices and the US dollar should remain the primary influences on the Canadian dollar, added Schamotta.

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