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The loonie has been a persistent loser for the past six weeks as the Bank of Canada did an abrupt about-face and turned resolutely neutral after surprisingly hawkish since the summer. After hiking rates not once but twice, the BOC saw its currency appreciate too much for its own liking and saw CAD data deteriorate at the start of Q3.
Lately, however, the Canadian economy has shown strong signs of rebound. Employment, Building Permits, Ivey PMI have all beaten forecasts while oil popped above the $50/bbl level and has remained there for several weeks.
Tomorrow the market will get a look at Canadian inflation data, which has been tepid at best running at about 1.5% per annum. However, if the CPI proves to be hotter than expected, that could shift BOC towards a more hawkish posture and spark a selloff in USDCAD towards the 1.2500 figure.