CAD: Inflation reading in focus

USDCAD has been largely range-bound recently as Canadian interest rates have recoupled with US rates. USDCAD's uptrend in late 2014-early 2015 corresponded with a divergence in economic prospects between US and Canada driven by the oil shock - whereas the 2y beta of 1y1yf CAD OIS on USD OIS had been 0.97 in mid 2014, this dropped to 0.64 recently. 

With oil prices stabilizing and staging a recovery, Canadian and US rates have recoupled - the 1m beta is now back at around 0.80. This implies a rangebound USDCAD and that USDCAD vol will likely remain suppressed until economic data point to any emerging divergence. 

Manufacturing sales and CPI inflation are the key readings next week. A weakening in sales and a downward surprise on CPI inflation may have a larger effect on the market status quo.