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USD/CAD to Threaten Monthly High on Soft Canada CPI Report

USD/CAD to Threaten Monthly High on Soft Canada CPI Report

David Song, Shuyang Ren,

- Canada’s Headline Consumer Price Index (CPI) to Hold Steady at Annualized 1.0% for Second-Month.

- Core Rate of Inflation to Slow to 2.0%- Lowest Reading Since July 2014.

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Trading the News: Canada Consumer Price Index (CPI)

Even though Canada’s Consumer Price Index (CPI) is expected to expand an annualized 1.0% in October, a slowdown in the core rate of inflation may dampen the appeal of the loonie and spur a near-term advance in USD/CAD as it puts increased pressure on the Bank of Canada (BoC) to further insulate the real economy.

What’s Expected:


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Why Is This Event Important:

With the Canadian economy stuck in a technical recession, signs of easing price growth may encourage BoC Governor Stephen Poloz to adopt a more dovish outlook for monetary policy, and the central bank may have little choice but to implement additional monetary support amid the readjustment in the real economy.

Expectations: Bearish Argument/Scenario

Wholesale Trade Sales (MoM) (SEP)0.2%-0.1%
Manufacturing Sales (MoM) (SEP)0.2%-1.5%
Retail Sales ex Auto (MoM) (AUG)0.2%0.0%

The recent downturn in private-sector consumption may encourage Canadian firms to offer discounted prices, and a softer-than-expected CPI report may spur fresh monthly highs in USD/CAD as it fuels speculation for additional monetary support.

Risk: Bullish Argument/Scenario

Net Change in Employment (OCT)10.0K44.4K
Unemployment Rate (OCT)7.1%7.0%
Raw Materials Price Index (MoM) (SEP)1.1%3.0%

However, Canadian firms may boost consumer prices amid rising input costs accompanied by the ongoing improvement in the labor market, and evidence of sticky inflation may encourage the BoC to turn increasingly upbeat towards the economy as Governor Poloz sees a more sustainable recovery ahead.

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How To Trade This Event Risk(Video)

Bearish CAD Trade: CPI Report Fails to Meet Market Forecast

  • Need to see green, five-minute candle following the release to consider a long trade on USD/CAD.
  • If market reaction favors a bearish loonie trade, buy USD/CAD with two separate position.
  • Set stop at the near-by swing low/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.

Bullish CAD Trade: Headline, Core Inflation Highlight Sticky Price Growth

  • Need red, five-minute candle to favor a short USD/CAD trade.
  • Implement same setup as the bearish Canadian dollar trade, just in reverse.

Potential Price Targets For The Release


USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook remains bullish for USD/CAD amid the broader series of higher highs & lows in price, but the pair may continue to congest over the coming days as the Relative Strength Index (RSI) largely preserves the bearish formation from back in July.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short USD/CAD since November 4, but the ratio has come off of recent extremes as it narrows to -1.31, with 43% of traders now long.
  • Interim Resistance: 1.3440 (50% expansion) to 1.3460 (61.8% retracement)
  • Interim Support: 1.2790 (50% retracement) to 1.2800 (38.2% expansion)

Impact that Canada CPI has had on USD/CAD during the last release

PeriodData ReleasedEstimateActualPips ChangePips Change




12:30 GMT


September 2015 Canada Consumer Price Index


Canada’s Consumer Price Index (CPI) unexpectedly slowed to an annualized rate of 1.0% from 1.3% the month prior, while the core rate of inflation also missed market forecast as the reading held steady at 2.1% amid expectations for a 2.2% print. In turn, the Bank of Canada (BoC) may largely retain a cautious outlook throughout 2015 as the central bank cuts its growth forecasts for the next two years, and Governor Stephen Poloz may look to further insulate the real economy as it slips into a technical recession. The Canadian dollar lost ground following the softer-than-expected CPI prints, with USD/CAD climbing above the 1.3100 handle to end the day at 1.3162.

Read More:

USD/CAD Pullback May Be Short-Lived on Slowing Canada Consumer Price Index (CPI), Retail Sales

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Price & Time: USD/CAD – It’s Showtime

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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