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Forex News: Canadian Dollar Weaknes Further After December CPI

Forex News: Canadian Dollar Weaknes Further After December CPI

Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: CAD Consumer Price Index (DEC) > -0.6% versus -0.2% expected, from -0.2% (m/m); +0.8% versus +1.2% expected, from +0.8% (y/y) > USDCAD BULLISH

Falling food and shelter costs dragged price pressures to their lowest level in three years, as the Canadian economy now battles a period of moderate deflation/disinflation. The Bank of Canada employs a +1.0% to +3.0% inflation band (a variation of the +2.0% inflation target employed by many other central banks, including the Federal Reserve, and now the Bank of Japan), meaning that any near-term rate pressures are off the table. Furthermore, this supports BoC Governor Mark Carney’s assertion from earlier this week that a rate hike is “less imminent,” as inflation is likely to hold below +2.0% throughout the 1H’13.

USDCAD 1-minute Chart: January 25, 2013

Forex_News_Canadian_Dollar_Weakens_Further_After_December_CPI_body_Picture_1.png, Forex News: Canadian Dollar Weaknes Further After December CPI

Charts Created using Marketscope – Prepared by Christopher Vecchio

The Canadian Dollar weakened on the print as government yields dropped, provoking the Loonie to depreciate slightly against the US Dollar. The USDCAD gained from 1.0068 to 1.0089 initially after the release, before falling back to 1.0071, at the time this report was written. Just this week, the USDCAD rallied through the descending trendline off of the November and December highs, bringing 1.0115 and 1.0220 in focus to the upside.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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