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Sticky Canada CPI to Foster Larger USD/CAD Pullback

Sticky Canada CPI to Foster Larger USD/CAD Pullback

2016-11-18 08:00:00
David Song, Currency Strategist

- Canada Consumer Price Index (CPI) to Uptick for Second Straight Month.

- Core Rate of Inflation to Hold Steady at Annualized 1.8% for Third Consecutive Month.

For more updates, sign up for David's e-mail distribution list.

Trading the News: Canada Consumer Price Index (CPI)

Another uptick in Canada’s Consumer Price Index (CPI) along with stickiness in the core rate of inflation may foster a larger pullback in USD/CAD as the Bank of Canada (BoC) ‘expects total CPI inflation to be close to 2 percent from early 2017 onwards.’

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the BoC ‘actively’ discussed more stimulus for the real economy, it seems as though Governor Stephen Poloz and Co. will continue to endorse a wait-and-see approach for monetary policy as ‘Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016.’ The risk of overshooting the 2% target for inflation may push the BoC to gradually move away from its easing-cycle, but signs of subdued price growth may encourage the central bank to further support the real economy as the region is anticipated to return to ‘full capacity around mid-2018, materially later than the Bank had anticipated in July.’

Expectations: Bullish Argument/Scenario




Ivey Purchasing Manager Index s.a. (OCT)



Net Change in Employment (OCT)



Business Outlook Future Sales (3Q)



The pickup in business confidence paired with the ongoing improvement in the labor market may fuel faster price growth in Canada, and a positive development may boost the appeal of the Canadian dollar as market participants scale back bets for another round of monetary stimulus.

Risk: Bearish Argument/Scenario




International Merchandise Trade (SEP)



Raw Materials Price Index (MoM) (SEP)



Retail Sales (MoM) (AUG)



Nevertheless, easing input-costs accompanied by the slowdown in private-sector consumption may push Canadian firms to offer discounted prices, and a softer-than-expected inflation report may spark a bearish reaction in the loonie 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: Canada CPI Picks Up for Second Consecutive Month

  • Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
  • If market reaction favors a long 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: Inflation Report Falls Short of Market Expectations

  • Need green, five-minute candle to favor a long USD/CAD trade.
  • Implement same setup as the bullish Canadian dollar trade, just in the opposite direction.

Potential Price Targets For The Release


USD/CAD Daily Calendar

Chart - Created Using Trading View

  • Broader outlook for USD/CAD remains constructive as the pair preserves the upward trending channel carried over from earlier this year, with the Relative Strength Index (RSI) highlighting a similar dynamic, but the recent series of lower highs & lows may pave a larger pullback in the exchange rate especially as the oscillator struggles to push into overbought territory.
  • Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
  • Interim Support: 1.2980 (61.8% retracement) to 1.3030 (50% retracement)

Check out the short-term technical levels that matter for USD/CAD heading into the report!

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


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)




12:30 GMT





September 2016 Canada Consumer Price Index (CPI)

USD/CAD 5-Minute


Canada’s Consumer Price Index (CPI) climbed an annualized 1.3% in September following a 1.1% expansion the month prior, while the core rate of inflation held steady at an annualized 1.8% for the second consecutive month. The weakness was largely driven by a 1.3% decline in the cost for food, while prices for clothing & footwear increased another 3.4% following the 1.1% expansion in August, with gasoline prices rebounding 0.8% during the same period. The Canadian dollar sold off following the softer-than-expected inflation report, with USD/CAD climbing above the 1.3300 handle to end the day at 1.3333.

Get our top trading opportunities of 2016 HERE

Read More:

US Dollar Whiplash Ends with a Trump Bump

GBP/JPY Technical Analysis: New Trend in Play after 800-Pip, 3-Day Romp

USD/CAD Technical Analysis: Pending Trade Talks & U.S. Inflation Weakens CAD

S&P 500 - Bears Got Trumpled, Short-term Trading Levels Noted

--- Written by David Song, Currency Analyst

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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