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Tier-1 Canadian CPI May Force BoC’s Hand And Boost CAD Higher

Tier-1 Canadian CPI May Force BoC’s Hand And Boost CAD Higher

2017-06-22 20:30:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • Positive Surprise on CAD CPI could align with FOMO taking CAD higher
  • NZD strength may resume after RBNZ failed to put the fear in the Bulls with FX talk
  • Fed Hawks fail to rally up buyers as cautious optimism keeps yields subdued
  • Sentiment Highlight: NZD/USD trend appears undeterred though trend fighting remains

Some central banks are having a hard time convincing investors that they will hold up their end of the bargain and others may enduce a fear of missing out (FOMO) on consistent data surprises. For example, Fed speakers continue to state a hike is on the way while long-term yields fall, yet other central banks are garnering the attention of the market. Notably, the Bank of Canada, who may contend with a surprise in the CPI print on Friday to bolster recent hawkish comments from Governor Poloz and Wilkins.

After Thursday’s retail sales print, the market began to price in (better than 50% probability) a hike for the Bank of Canada rate announcement in July. Per Bloomberg, the retail data shows Canada’s consumer confidence via the retail sector is off to the best year since 1991. While concerns remain about household debt to income being the highest in the G7, a strong CPI may force the BoC’s hand and lead to USD/CAD breaking definitively below the rising support line that you can see on today’s top chart. The band of consolidation since June 13 may favor continuation of the move lower from May 5 that would be confirmed on a weekly close below 1.3165.

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The G8 leading NZD rose on Wednesday morning (Tuesday night in the Western Hemisphere) when the RBNZ kept rates firm but failed to deliver an inspiring message that they were really serious about wanting a weak NZD. The RBNZ blamed milk for their growth and inflation (dairy is ~25% of the New Zealand GDP) and remained upbeat about economic growth, which is near the top for the G8 while saying they were willing to look through softer data. Since FX is a game of expectations, the RBNZ landed on the hawkish side compared to the market’s perception of where they could be going into the meeting. There was not a significant rally, and it could mean that the next leg higher or lower for NZD/USD would be at the hands of the USD since the next big domestic economic indicator is CPI next month.

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As is customary after Central Bank rate announcements, the Fed calendar has been busy with speeches helping to provide guidance and understanding on how the Fed hopes to reach their dual goals of price stability and full employment while ensuring financial institution stability. So far this week, we have been given a few helpings of ‘cautious optimism, with Bill Dudley of the NY Fed giving the most weight to the idea that the Fed will stay on its tightening path. Currently, it’s hard to blame the Fed with that line of thinking when current financial conditions are making rate hikes a near give-away as the Federal Reserve Bank of Chicago Financial Conditions Index is showing the easiest financial conditions since 2014. Once again, there remains tail-risk to the USD on a possible policy announcement from the current administration. When looking at the DXY chart, it’s worth keeping an eye on the 98.20 (close before first round French Election gap), a hold or failure to close above this level would keep the 2017 downtrend preferred to continue.

Where are the trades to be found among the low-volatility environment?Find out here!

Closing Bell’s Top Chart: June 22, 2017, Hotly anticipated CPI could push USD/CAD out of bear flag

Tier-1 Canadian CPI May Force BoC’s Hand And Boost CAD Higher

Chart Created by Tyler Yell, CMT

Tomorrow's Main Event:CAD Consumer Price Index (YoY) (May) – Exp: 1.5%

IG Client Sentiment Highlight: Heavily net short FX traders on NZD heading into RBNZ decision

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

Tier-1 Canadian CPI May Force BoC’s Hand And Boost CAD Higher

NZDUSD: Retail trader data shows 15.3% of traders are net-long with the ratio of traders short to long at 5.54 to 1. In fact, traders have remained net-short since May 24 when NZDUSD traded near 0.69347; the price has moved 4.8% higher since then. The number of traders net-long is 15.3% higher than yesterday and 0.8% lower from last week, while the number of traders net-short is 12.4% higher than yesterday and 51.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests NZDUSD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed NZDUSD trading bias. (Emphasis mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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