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Trading the News: Canada Consumer Price Index (CPI)

Updates to Canada’s Consumer Price Index (CPI) may curb the recent decline in USD/CAD as the headline reading is expected to slow to 1.4% from 2.0% per annum in December.

Image of DailyFX economic calendar

Signs of slowing inflation is likely drag on the Canadian dollar as it encourages the Bank of Canada (BoC) to keep the benchmark interest rate on hold, and the central bank may come under pressure to endorse a wait-and-see approach as Governor Stephen Poloz & Co. warn that the recent ‘forecast reflects a temporary slowing in the fourth quarter of 2018 and the first quarter of 2019.

In turn, a marked downtick in Canada’s CPI may encourage the BoC to endorse a wait-and-see approach at the next meeting on March 6, but another higher-than-expected reading may trigger a bullish reaction in the Canadian dollar as in fuels bets for a rate-hike in 2019. 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)

DEC

2018

01/18/2019 13:30:00 GMT

1.7%

2.0%

-7

-9

December 2018 Canada Consumer Price Index (CPI)

USD/CAD5-Minute Chart

Image of usdcad 5-minute chart

Canada’s Consumer Price Index (CPI) unexpected climbed to 2.0% from 1.7% per annum in November, while the trimmed-mean reading for core inflation held steady at 1.9% for the second month. A deeper look at the report showed food prices increasing another 1.0% in December, with Transportation costs increasing 0.7%, while prices for clothing and footwear contracted another 3.4% after slipping 1.3% in November.

The Canadian dollar struggled to hold its ground following the lackluster employment report, but the initial reaction was short-lived, with USD/CAD slipping below the 1.3400 handle to close the day at 1.3371. 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), and the failed attempts to test the November-low (1.3049) may keep the exchange rate afloat as the near-term correction stalls ahead of the 1.2980 (61.8% retracement) to 1.3030 (50% expansion) region.
  • In turn, the 2019-range is in focus, with the Fibonacci overlap around 1.3290 (61.8% expansion) to 1.3310 (50% retracement) back on the radar, but need a break/close above the stated region to open up the 1.3420 (78.6% retracement) to 1.3460 (61.8% retracement) area.

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.