Canadian Dollar Looks to Nonfarm Payrolls, Crude Oil for Direction
Industrial Product Prices will likely show that inflation slowed through February, but recent Consumer Price Index numbers have shown a steady rise in Bank of Canada Core Consumer Price Index inflation and represent a key stumbling block to monetary policy. The BoC recently reiterated its commitment to keeping interest rates near record-lows until after the second quarter of 2010, but recent rhetoric emphasized that such a statement was conditional on the trajectory of prices. No doubt that the bank would have noticed core inflation at 2.1 percent on a year-over-year basis—just marginally above its official target of 2.0 percent. As an inflation-targeting central bank, the BoC has a mandate to keep price pressures contained. Stubbornly high price growth amidst relatively weak economic activity suggests that prices will only pick up further when the economy sees further recovery.
The topic of interest rates will likely take a backseat for the time being—at least until the next Bank of Canada interest rate announcement on April 20. In the meantime traders will keep a very close eye on the trajectory of Crude Oil prices and other hard commodities. The highly-correlated Canadian Dollar stands to move on substantive volatility in said asset classes, and it will be especially important to watch whether Crude prices break out of their recent consolidative range. Whether it is a breakout to the upside or the downside, the Canadian Dollar would likely follow. - DR
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