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Trading the News: Canada Consumer Price Index (CPI)

Updates to Canada’s Consumer Price Index (CPI) may do little to alter the near-term outlook for USD/CAD as the headline reading for inflation is expected to hold steady at 1.7% per annum for the second month in December.

Image of DailyFX economic calendar

Signs of limited price growth is likely to sap the appeal of the Canadian dollar as it encourages the Bank of Canada (BoC) to endorse a wait-and-see approach for monetary policy, and the central bank may merely attempt to buy more time at the next meeting on March 6 as ‘CPI inflation is projected to edge further down and be below 2 per cent through much of 2019.’

In turn, a 1.7% print or lower may prop up USD/CAD ahead of the weekend, but an unexpected pickup in the headline reading for inflation may fuel the decline from earlier this month as it puts pressure on Governor Stephen Poloz & Co. to further embark on its hiking-cycle over the coming months. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Impact that Canada’s CPI 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)

NOV

2018

12/19/2018 13:30:00 GMT

1.8%

1.7%

+6

+42

November 2018 Canada Consumer Price Index (CPI)

USD/CAD5-Minute Chart

Image of usdcad 5-minute chart

Canada’s Consumer Price Index (CPI) slipped to 1.7% from 2.4% per annum in October, with two of the three gauges for core inflation also narrowing during the same period. A deeper look at the report showed the weakness was drive by a 9.4% decline in gasoline prices, with transportation costs also contracting 1.6%, while prices for food increased 1.0% after falling 0.2% in October.

The Canadian dollar struggled to hold its ground following the weaker-than-expected figures, with the exchange rate tracking higher throughout the day to close at 1.3484. 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, broader outlook for USD/CAD remains constructive following the break of the June-high (1.3386), but the failed attempts to close above the 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion) region raises the risk for a larger correction as both price & the RSI snap the bullish formations from October.
  • String of failed attempts to push back above the 1.3290 (61.8% expansion) to 1.3310 (50% retracement) region brings the downside targets on the radar as a bear-flag formation takes shape.
  • A short-term continuation pattern would raise the risk for a move back towards 1.3130 (61.8% retracement), with the next region of interest coming in around 1.2980 (61.8% retracement) to 1.3030 (50% expansion).

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.