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Trading the News: Canada Consumer Price Index (CPI)

Canada’s Consumer Price Index (CPI) may do little to curb the recent advance in USD/CAD as the headline reading is expected to slow to 2.7% from 2.8% per annum in August.

Image of DailyFX economic calendar

Signs of easing price pressures may keep the Bank of Canada (BoC) on the sidelines at the next meeting on October 24 as the central bank ‘expects CPI inflation to move back towards 2 per cent in early 2019,’ and a batch of lackluster data prints may ultimately spark a bearish reaction in the Canadian dollar as it saps bets for an imminent rate-hike.

However, another unexpected uptick in the core rate of inflation may drag on USD/CAD as it puts pressure on Governor Stephen Poloz & Co. to step up the pace of policy normalization, with the exchange rate at risk of exhibiting a more bearish behavior over the coming days as it continues to track the downward trend off of the 2018-high (1.3386). Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG

2018

09/21/2018 12:30:00 GMT

2.8%

2.8%

-5

-9

August 2018 Canada Consumer Price Index (CPI)

USD/CAD 5-Minute Chart

Image of usdcad 5-minute chart

Canada’s Consumer Price Index (CPI) slowed for the first time since April, with the headline reading narrowing to 2.8% from 3.0% per annum in July, while the core rate of inflation unexpectedly widened to 2.0% from 1.9% during the same period. A deeper look at the report showed the weakness was led by a 0.5% decline in transportation costs, with food prices also narrowing 0.1% in August, while prices for clothing/footwear climbed 0.8% after contracting 1.3% during the previous month.

The initial downtick in USD/CAD was short-lived, with the exchange rate climbing back above the 1.2900 handle to close the day at 1.2912. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

USD/CAD Daily Chart

Image of usdcad daily chart
  • Keep in mind, the broader outlook for USD/CAD remains tilted to the downside as both price and the Relative Strength Index (RSI) preserve the bearish trends carried over from June.
  • Nevertheless, the 1.3130 (61.8% retracement) hurdle sits on the radar as USD/CAD carves a series of higher lows, with a break above the stated region bringing the topside targets back into focus.
  • Will keep a close eye on the RSI as it comes up against trendline resistance, with the oscillator at risk of highlighting a shift in behavior if it breaks out of the bearish formation.

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.