- Canada Consumer Price Index (CPI) to Increase for Third Consecutive Mont.
- Core Rate of Inflation to Climb for Second Month to Annualized 2.4%.
For more updates, sign up for David's e-mail distribution list.
Trading the News: Canada Consumer Price Index (CPI)
Canada’s Consumer Price Index (CPI) may boost the appeal of the loonie and trigger a near-term decline in USD/CAD should the report dampen speculation for another Bank of Canada (BoC) rate cut.
What’s Expected:
Click Here for the DailyFX Calendar
Why Is This Event Important:
A series of positive data prints may keep the BoC on the sidelines throughout the remainder of the year as the central bank cut the benchmark interest rate to a record-low of 0.50%, and Governor Stephen Poloz may largely endorse a wait-and-see approach over the near to medium-term as the recent efforts feed through the real economy.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Wholesale Trade Sales (MoM) (JUN) | 0.9% | 1.3% |
| Net Change in Employment (JUL) | 5.0K | 6.6K |
| Retail Sales (MoM) (MAY) | 0.6% | 1.0% |
The pickup in private-sector spending along with the ongoing improvement in the labor market may encourage Canadian firms to boost consumer prices, and signs of sticky inflation may spur a material shift in the BoC’s rhetoric as price growth continues to run above the 2% target .
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Existing Home Sales (JUL) | -- | -0.4% |
| Gross Domestic Product (MoM) (MAY) | 0.0% | -0.2% |
| Raw Materials Price Index (MoM) (JUN) | 1.0% | 0.0% |
In contrast, fears of a technical recession paired with lower input costs may continue to drag on price growth, and a dismal CPI print may heighten the bearish sentiment surrounding the Canadian dollar as the BoC retains a cautious outlook for the region.
Join DailyFX on Demand for Real-Time SSI Updates Across the Majors!
How To Trade This Event Risk(Video)
Bullish CAD Trade: Headline & Core CPI Highlight Stronger Price Growth
- Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
- If market reaction favors a bullish loonie trade, sell USD/CAD with two separate position.
- Set stop at the near-by swing high/reasonable distance from entry; look for 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 Inflation Falls Short of Market Forecast
- Need green, five-minute candle to favor a long USD/CAD trade.
- Implement same setup as the bullish Canadian dollar trade, just in reverse.
Potential Price Targets For The Release
USD/CAD Daily
Chart - Created by David Song
- Long-term outlook for USD/CAD remains bullish amid the divergence in monetary policy, but the failure to retain the bullish RSI momentum carried over from May raises the risk for a larger pullback.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short USD/CAD since June 18, but the ratio has come off of recent extremes as it narrows to -2.13, with 32% of traders long.
- Interim Resistance: 1.3210 (78.6% expansion) to 1.3212 (August high)
- Interim Support: 1.2800 (38.2% expansion) to 1.2834 (March high)
Read More:
Retail FX Fades EUR/USD Resilience as Pair Probes 1.1200 Resistance
EURUSD Surges to Fresh Weekly High on FOMC Leak- Long Scalps Favored
Impact that Canada CPI has had on USD/CAD during the last release
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
JUN 2015 | 07/17/2015 12:30 GMT | 1.0% | 1.0% | -9 | -8 |
June 2015 Canada Consumer Price Index
Canada’s Consumer Price Index (CPI) came in-line with market expectations as the headline print increased an annualized rate of 1.0% in June following the 0.9% expansion the month prior. However, the core rate of inflation unexpectedly accelerated to 2.3% after rising 2.2% in May. Despite the stickiness in price growth, the Bank of Canada (BoC) may keep the door open to further support the real economy after lowering the benchmark interest rate to a record-low of 0.50% amid the growing risk for a technical recession. The initial market reaction was short-lived, with USD/CAD snapping back above 1.3000, but the pair consolidated throughout the North America trade to end the day at 1.2968.
--- Written by David Song, Currency Analyst and Shuyang Ren
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.
Trade Alongsidethe DailyFX Team on DailyFX on Demand
Looking to use the DailyFX Trade Signals LIVE? Check out Mirror Trader.
New to FX? Watch this Video
Join us to discuss the outlook for the major currencies on the DailyFXForums
