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Loonie Remains Strong as Canadian CPI Softened, Leading Indicators Advanced in March

By Trang Nguyen
20 April 2012 13:42 GMT

THE TAKEAWAY: Canada Consumer Price Index Increased 0.4 Percent on Monthly Basis and 2.0 Percent on Yearly Basis in March, Leading Indicators Rose 0.4 Percent> Soft Inflation may Encourage Bank of Canada to Preserve its Low Interest Rate Policy throughout 2012>CAD Remains Higher

Consumer Price Index

Canada’s inflation has softened in March on slower price pressures for food and energy, dampening expectations for a rate hike in near term.

The consumer price index advanced 0.4 percent last month, following 0.4 percent rise in February, the Ottawa-based Statistics Canada reported today. The reading fell short of 0.5 percent gain anticipated,according to the Bloomberg News survey. Over a year prior, the all items index fell back to 2.0 percent from 2.6 percent in February. This 0.7 percentage point difference was mainly triggered by slower year-over-year increases in prices for food and energy.

The year-to-year cost of energy mounted 5.1 percent in March, following a 7.2 percent gain in the previous month, among which gasoline prices eased to 6.6 percent last month after climbing 8.9 percent in February. Electronic costs increased 5.3 percent compared to 8.7 percent in the prior month. Meanwhile, the food prices advanced 2.2 percent in the twelve months to March, after surging 4.1 percent in February. This slower increase was the result of month-over-month decline in food prices last month.

The Bank of Canada’s core index rose 0.3 percent on monthly basis and gained 1.9 percent on yearly basis. Year-over-year price pressures eased in March mainly due to slower price increases for electricity and price declines in woman’s clothing.

Leading indicators

Another report issued by Statistics Canada at the same time today showed that the Canada’s composite leading indicators rose for the ninth straight month in February on improvement in financial and housing sectors. The index surged 0.4 percent last month amid consensus forecast of 0.5 percent gain from Bloomberg News survey. Meanwhile, February reading was upwardy revised to a gain of 0.7 percent from an advance of 0.6 percent initially reported.

The composite leading indicator comprised of ten components which significantly affect cyclical activity in the economy and together represent major categories of Gross Domestic Product. Eight of ten components registered gains in March compared to six in February.

The financial components remained positive since both stock index and money supply witnessed the sizable gains in March. Likewise, the housing component recovered on advances in both existing home sales and starts. Meanwhile, manufacturing components showed mixed results with a gain of the ratio of shipments to inventories offset by decline in new orders.

USDCAD 1-minute Chart: April20, 2012

042012_Canada_Consumer_Price_Index_and_Leading_Indicators_body_Picture_2.png, Loonie Remains Strong as Canadian CPI Softened, Leading Indicators Advanced in March

Chart created using Strategy Trader – Prepared by Trang Nguyen

The Canadian dollar gains its footing versus most of its major trading partners ahead of an opening bell in North America trade today. The Consumer Price Index and Leading Indicators reports released today failed to trigger a noticeable volatility in the loonie. As seen from the 1-minute USDCAD chart above, the currency pair fluctuated between the range of 0.9910 and 0.9925 after the release. At the time this report was written, the U.S. dollar trades at C$0.9915.

--- Written by Trang Nguyen, DailyFX Research Team for DailyFX.com

To contact Trang, email tnguyen@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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20 April 2012 13:42 GMT