The US dollar is broadly higher this morning (up 0.3% against CAD) as a key indicator of US inflation came in at 3.1% in April, somewhat higher than expected. The market reaction to the higher-than-expected inflation figure was somewhat muted by the fact that the US dollar had already traded up overnight and that the inflation figure, while high, was not very far from expectations. At the same time, the Federal Reserve has gone out of its way to say that it will not restrain monetary stimulus to modestly higher inflation figures. Also, helping the Canadian dollar restrain the USD’s overall strength this morning are higher oil prices with Brent now sitting at the highest level in two years. Oil prices headed higher on a growing sentiment that if the Iran nuclear deal is revived, it will not include an immediate removal of sanctions and that the oil market will not get quickly flooded with excess supplies. With both the US and UK markets closed on Monday, we expect less volatility than usual in USD to CAD for the rest of the day.
