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Lackluster Canada Consumer Price Index (CPI) to Bolster USD/CAD Gains

Lackluster Canada Consumer Price Index (CPI) to Bolster USD/CAD Gains

2017-01-20 08:00:00
David Song, Strategist
Share:

- Canada Consumer Price Index (CPI) to Expand Annualized 1.7%- Fastest Since April.

- All Three Preferred Measures for Core Inflation Slowed in November.

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 derail the near-term advance in USD/CAD as the headline reading is projected to climb an annualized 1.7% in October, but a further slowdown in the three preferred measures for core inflation may dampen the appeal of the Canadian dollar as the Bank of Canada (BoC) endorses a dovish outlook for monetary policy.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

The BoC looks poised to retain the current policy for the foreseeable future as the central bank pledges to ‘assess the impact of ongoing developments, mindful of the significant uncertainties weighing on the outlook,’ but Governor Stephen Poloz and Co. may keep the door open to further support the real economy as the central bank warns ‘inflation in Canada has been lower than anticipated since October.’ That said, another weaker-than-expected CPI print may fuel the near-term rebound in USD/CAD, and the central bank may continue to cast a cautious outlook for the region as ‘new measures of core inflation are all below 2 per cent presently, weighed down by excess capacity in the economy.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (DEC)

--

2.2%

Retail Sales (MoM) (OCT)

0.3%

1.1%

Ivey Purchasing Manager Index s.a. (DEC)

--

60.8

Increased consumption paired with the pickup in business sentiment may boost consumer prices, and a stronger-than-expected CPI reading may curb the recent rebound in the dollar-loonie exchange rate as it dampens speculation for additional monetary support.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

BoC Senior Loan Officer Survey (4Q)

--

-2.6

Raw Material Prices Index (MoM) (NOV)

-1.8%

-2.0%

Gross Domestic Product (YoY) (OCT)

1.8%

1.5%

However, easing input costs accompanied by the slowdown in private-sector credit may drag on price growth, and another weak inflation print may spark a bearish reaction in the Canadian dollar as it puts increased pressure on the BoC to further support the real economy.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

How To Trade This Event Risk(Video)

Bullish CAD Trade: Canada CPI Climbs 1.7% or Greater

  • Need to see red, five-minute candle following the report 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: Headline & Core Inflation Continues to Disappoint

  • 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

USD/CAD Daily Chart

Chart - Created Using Trading View

  • Failure to test the October low (1.3006) may generate a larger recovery in USD/CAD, with the broader outlook tilted to the topside as the pair still operates within the upward trending channel carried over from the previous year; seeing a similar dynamic in the Relative Strength Index (RSI) as the oscillator appears to be responding to trendline support and preserves the bullish formation.
  • Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
  • Interim Support: 1.2980 (61.8% retracement) to 1.3020 (50% expansion)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

NOV

2016

12/22/2016

13:30 GMT

1.4%

1.2%

+20

+5

November 2016 Canada Consumer Price Index (CPI)

USD/CAD 5-Minute

USD/CAD Chart

Consumer prices in Canada grew an annualized 1.4% in November following a 1.5% expansion the month prior, with the slowdown largely driven by a 4.3% decline in gasoline prices. At the same time, prices for clothing for clothing and footwear narrowed 2.1% in November, with transportation costs also narrowing 1.2%, while prices for food bounced back 0.5% during the same period. The Canadian dollar struggled to hold its ground following the dismal print, with USD/CAD preserving the losses throughout the North American trade, with the pair ending the day as 1.3480.

If you’re looking for trading ideas, check out our Trading Guides.

Read More:

COT-Crude Oil Positioning Remains Extreme

Crude Oil Price Forecast: Oil’s Impressive Polarity Zone Pivot

Silver Price Resistance and Dollar Support Confluence

USD/CAD at Risk for Further Losses Sub-1.33

--- 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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