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Trading the News: Canada Consumer Price Index (CPI)

Updates to Canada’s Consumer Price Index (CPI) may fuel the recent advance in USD/CAD as the headline reading for inflation is projected to slow to 1.8% from 2.4% per annum in October.

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 January 9 as inflation ‘is expected to ease in coming months by more than the Bank had previously forecast, due to lower gasoline prices,’ and the Canadian dollar stands at risk of facing additional headwinds over the near-term should the data prints undermine the hawkish forward-guidance for monetary policy.

Nevertheless, another unexpected uptick in the CPI may curb the recent advance in USD/CAD as it puts pressure the BoC to deliver an imminent rate-hike, and the central bank may continue to prepare Canadian households and businesses for higher borrowing-costs as the ‘Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target.Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Impact that Canada’s 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)

OCT

2018

11/23/2018 13:30:00 GMT

2.2%

2.4%

+25

+19

October 2018 Canada Consumer Price Index (CPI)

USD/CAD5-Minute Chart

Image of usd/cad 5-minute

Canada’s Consumer Price Index (CPI) unexpectedly climbed to 2.4% from 2.2% per annum in September, while the various measures for core inflation showed a small downward adjustment for the previous print, with the median reading advancing to 2.0% from a revised 1.9%. A separate report showed Retail Sales climbing 0.2% in September despite forecasts for a flat print, with the rise led by increased demand for autos.

The initial reaction in the Canadian dollar was short-lived, with USD/CAD quickly climbing back above the .13200 handle to close the day at 1.3233. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

USD/CAD Daily Chart

Image of usdcad daily chart
  • Near-term outlook for USD/CAD remains constructive as it clears the June-high (1.3386), with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator appears to be breaking out of a wedge/triangle formation.
  • In turn, topside targets remain on the radar, with the next area of interest coming in around 1.3540 (23.6% retracement), but lack of momentum to hold above the 1.3420 (78.6% retracement) to 1.3460 (61.8% retracement) region raises the risk for a move back towards the Fibonacci overlap around 1.3290 (61.8% expansion) to 1.3310 (50% retracement).

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.