Disinflation Evident in March, but US Dollar Steady After CPI
THE TAKEAWAY: USD Consumer Price Index (MAR) > -0.2% versus 0.0% expected, from +0.7% (m/m), +1.5% versus +1.6% expected, from +2.0% (y/y) > USDCAD BEARISH
Did the fiscal cliff deal lay the ground work for a ‘slippery spring?’ Possibly – data out of the US continues to slide lower the past several weeks, as the March reporting period has come to pass. Today’s release of the Consumer Price Index (MAR) follows several other weak data prints as well: ISM Manufacturing (MAR); ADP Employment (MAR); ISM Services (MAR); Nonfarm Payrolls (MAR); Advance Retail Sales (MAR); and U. of Michigan Confidence (APR P). Sentiment leading up to the March budget sequestration softened, leading a clear relative reduction in economic activity.
With the payroll tax hike in full swing and the budget sequestration underway, price pressures fell by -0.2% m/m in March, down from +0.7% m/m in February, and below the flat reading that was expected, as per a Bloomberg News survey. But a look at the core readings – which excludes the more volatile food and energy components – suggests that consumption may be holding strong. In fact, Core Services rose by +2.5% y/y, just off of its post-recession high of +2.6%; retail gasoline prices fell -4.4% m/m. For now, we view this data as a sign of disinflation – positive but a decreasing rate of inflation – which may temper hawkish chatter out of the Federal Reserve.
USDCAD 1-minute Chart: April 16, 2013
Charts Created using Marketscope – Prepared by Christopher Vecchio
Following the release, the USDCAD – perhaps the most sensitive major pair to consumption and production data out of the United States, given the trade relationship between the United States and Canada – traded lower from 1.0219 to as low as 1.0204. At the time this report was written, the USDCAD traded at 1.0212. Overall, the US Dollar was slightly stronger across the board, mainly due to strength seen in USDJPY and downside pressure in precious metals.
--- Written by Christopher Vecchio, Currency Analyst
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