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USD/CAD Risks Larger Pullback on Faster Canada Headline & Core CPI

By , Currency Analyst  and Gregory Marks
17 April 2014 07:00 GMT

USD/CAD Risks larger pullback core cpi data

- Canada Headline & Core Inflation to Rebound in March.

- Consumer Price Index (CPI) has Held Above 1.0% for Last Three-Months.

Trading the News: Canada Consumer Price Index

A rebound in Canada’s Consumer Price Index (CPI) may spur a near-term pullback in the USD/CAD as it dampens bets of seeing the Bank of Canada (BoC) further embark on its easing cycle.

What’s Expected:

USD-CAD-Risks-Larger-Pullback-Core-CPI-0219_body_ScreenShot234.png, USD/CAD Risks Larger Pullback on Faster Canada Headline & Core CPI USD/CAD CPI

Why Is This Event Important:

Heightening price pressures may keep the BoC on the sidelines as it limits the threat for deflation, and Governor Stephen Poloz may endorse a more neutral tone for monetary policy as the central bank head sees a ‘soft landing’ in the Canadian economy.

Join DailyFX on Demand to Cover Canada’s Consumer Price Report LIVE.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Sales (MoM) (FEB)

1.0%

1.4%

Raw Materials Price Index (MoM) (FEB)

3.0%

5.7%

Retail Sales (MoM) (JAN)

0.7%

1.3%

Rising input costs paired with the pickup in private sector consumption may encourage Canadian firms to boost consumer prices, and a marked uptick in the CPI may spur a near-term pullback in the USD/CAD as it limits the threat for deflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Housing Starts (MAR)

192.0K

156.8K

Business Outlook Future Sales (1Q)

31.00

27.00

Ivey Purchasing Manager Index s.a. (MAR)

59.0

55.2

However, the headline reading for inflation may continue to undershoot amid the slowing housing market along with the downturn in business sentiment, and a weaker-than-expected CPI print may heighten the bearish sentiment surrounding the Canadian dollar as it puts increased pressure on the BoC to further embark on its easing cycle.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Price Growth Climbs 1.4% or Greater

  • Need red, five-minute candle after the CPI report to consider short USD/CAD entry
  • If the market reaction favors a bullish Canadian dollar trade, establish short with two position
  • Set stop at the near-by swing high/reasonable distance from cost; use at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish CAD Trade: Canada Consumer Prices Disappoint

  • Need green, five-minute candle following the release to look at a long USD/CAD trade
  • Carry out the same setup as the bullish loonie trade, just in reverse

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Carves Higher Low (1.0857) in April; Long-Term Bias Remains Bullish
  • Need Topside Break in Relative Strength Index for Conviction on Higher High
  • Interim Resistance: 1.1310 Pivot to 1.1320 (61.8% expansion)
  • Interim Support: 1.0850 (61.8% retracement) to 1.0870 (100% expansion)

Read More:

Equities Rally on More of the Same From Yellen, Fed Beige Book  

Price & Time: Top Looming in the Aussie

Impact that the Canada Consumer Price report has had on CAD during the last month

Period

Data Released

Survey

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB

2014

03/21/2014 13:30 GMT

1.0%

1.1%

-35

flat

February 2014 Canada Consumer Price Index

USD/CAD Chart

The Canadian Dollar began a strong month following a better than expected CPI print that came in a tenth of a percent above estimates. Although the pair hit multi-year highs just hours before this print, the USDCAD has since spent the past few weeks falling to lows not seen since the first week of January. After moving higher off key support and continuing to gain strength following the Bank of Canada Rate Decision on Wednesday, a weaker CPI print could help support the USDCAD pair resume some of the upward trends we saw start to play out as 2014 kicked off. Read more about Wednesday’s Bank of Canada Rate Decision.

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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17 April 2014 07:00 GMT