FED: US TSY 8W BILL AUCTION: HIGH 4.235%(ALLOT 57.69%)

• US TSY 52W BILL AUCTION: HIGH 3.820%(ALLOT 56.62%)
• US TSY 52W BILL AUCTION: DEALERS TAKE 28.34% OF COMPETITIVES
• US TSY 52W BILL AUCTION: DIRECTS TAKE 2.67% OF COMPETITIVES
• US TSY 52W BILL AUCTION: INDIRECTS TAKE 68.99% OF COMPETITIVES
• US TSY 52W AUCTION: BID/CVR 2.94

The softer-than-expected March headline CPI reading has not resulted in any reconsideration of views for Wednesday's BOC decision that we have seen. Of six major Canadian banks, three had seen a rate hold and three a 25bp cut, and that continues to be the case post-CPI. Note market pricing went to around 50%/50% for hold/25bp cut immediately after CPI, but this quickly reverted to where we entered the session at around a one-in-three chance of a cut (in part due to headlines that Canada would offer tariff relief on some US imports).

• TD had entered the week expecting the BOC to hold rates and hasn't changed view post-CPI: "We do not think the downside surprise on CPI will be enough to push the BoC into a cut tomorrow. Core inflation metrics still sit outside the Bank's comfort zone, and there is a high degree of uncertainty about the ultimate impact of global trade frictions in Canada, from both a price and activity perspective. At the same time, the progress on inflation (if sustained) reduces the risk of price pressures preventing future BoC cuts, should they be warranted. All of which is to say, we still look for a hold in April, and we feel quite a bit better about our forecast for the Bank to resume rate cuts in June."
• We haven't heard from Scotiabank post-CPI, but before the release they noted the data would have "little ability to influence the next day’s BoC decision" and note "the BoC’s forecasts and Monetary Policy Report will be set before the CPI release and they are unlikely to be overly reactionary to just one set of numbers."
• National Bank didn't mention any change in their "hold" call, instead interpreting the CPI data in the context of future easing : "Given the tariff uncertainties that are paralysing several companies and are likely to lead to further weakness, we reiterate that the upsurge in inflation was temporary, especially since the Canadian government does not seem inclined to implement strong retaliatory tariffs. In such a context, the Bank of Canada should be in a position to further deliver interest rate cuts this year (key rate forecast at 2.0% at the end of the year)."
• CIBC had already expected a 25bp cut Wednesday: "The easing in price pressures is consistent with the Bank of Canada cutting interest rates by 25bps at tomorrow's meeting, with the downside risks to growth from the trade war outweighing any upside to inflation from tariffs in our view."
• As did RBC: "Although still higher than the pre-tax holiday figure of 1.9% in November, the headline reading says inflation risks ahead of tariffs were subsiding, and the BoC can afford to opt for an insurance cut like it did in March."
• And BMO, despite noting solid core CPI measures: "gasoline prices fell heavily on April 1 as the carbon tax was removed, and have sunk even further on the steep drop in global oil prices, paving the way for a big tumble in headline inflation a month from now. Normally, this would be a big green light for the BoC to cut tomorrow, except the small detail that their major core measures are holding close to 3% (so with the overnight rate having been slashed to 2.75%, real rates are already negative) and policymakers are operating in the dense fog of an ever-shifting trade war."

USD/CAD hits a new daily high following the London close - 1.3938 marks the new daily high having cleared both the overnight high as well as Monday's 1.3911.

• Moves come despite Canada's decision to provide tariff exemptions for automakers that stay within Canada (GM and Stellantis both maintain assembly plants in Ontario) as well as a six-month counter-tariff delay to some US goods.
• Instead, the further weakness in energy prices will be working against the currency. The bounce off lows for Brent crude futures appears to have stalled, keeping prices either side of $64/bbl and looking once again fragile now that the oversold condition has unwound.
• That said, a bearish theme for USD/CAD remains intact for now. Last week’s move down marked a resumption of the downtrend and has signalled scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement.
• The Bank of Canada decision due tomorrow is the next focus - and while consensus looks for no change to rates tomorrow - a significant minority eye a further 25bps rate cut, which will be supporting overnight vols, which opened close to 15 points earlier today.