– Canada Consumer Price Index (CPI) to Slow After Holding at 2.1% for Last Two-Months.
– Core Inflation to Retain the Fastest Pace of Growth Since April 2012.
Trading the News: Canada Consumer Price Index (CPI)
A slowdown in Canada’s Consumer Price Index (CPI) may generate a further advance in USD/CAD as it gives the Bank of Canada (BoC) greater scope to retain its current policy throughout the remainder of 2014.
For more updates, sign up for David’s e-mail distribution list.
What’s Expected:
Click Here for the DailyFX Calendar
Why Is This Event Important:
However, the stickiness in core inflation may heighten the appeal of the loonie as it puts increased pressure on central bank Governor Stephen Poloz to adopt a more hawkish tone for monetary policy, and the USD/CAD may face a larger pullback ahead of the October 22 policy meeting should the report boost interest rate expectations.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Raw Materials Price Index (MoM) (AUG)
-1.5%
-2.2%
Gross Domestic Product (MoM) (JUL)
0.3%
0.0%
Retail Sales (MoM) (JUL)
0.5%
-0.1%
Easing input costs along with the slowdown in private consumption may generate a marked slowdown in price growth, and a dismal CPI print may generate fresh monthly highs in USD/CAD as market participants scale back bets for higher borrowing costs.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Business Outlook Future Sales (3Q)
28.00
35.00
New Housing Price Index (YoY) (AUG)
1.5%
1.5%
Average Weekly Earnings (YoY) (JUL)
—
3.3%
However, higher wage growth paired with expectations for a faster recovery may boost price pressures in Canada, and a strong inflation reading should spur a bullish reaction in the Canadian dollar as it raises the BoC’s scope to further normalize monetary policy.
For LIVE SSI Updates Ahead of Canada’s Inflation Report, Join DailyFX on Demand
How To Trade This Event Risk(Video)
Bearish CAD Trade: Headline & Core Inflation Slows in September
Need green, five-minute candle following a dismal CPI report to consider long USD/CAD entry
If the market reaction favors a bearish Canadian dollar trade, establish long with two position
Set stop at the near-by swing low/reasonable distance from cost; use at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bullish CAD Trade: Consumer Price Report Tops Market Expectations
Need red, five-minute candle following the release to look at a short USD/CAD trade
Carry out the same setup as the bearish loonie trade, just in the opposite direction
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Bearish RSI break may undermine inverse head-and-shoulders pattern; will stay constructive as long as USD/CAD holds above the August low (1.0809).
Interim Resistance: 1.1380 (78.6% expansion) to 1.1400 Pivot
Interim Support: 1.0830 (61.8% retracement) to 1.0850 (38.2% retracement)
Read More:
Price & Time: To Bounce, Or Not To Bounce – That Is The Question
Dollar: Market No Longer Expects a 2015 Rate Hike
Impact that the Canada CPI report has had on CAD during the last month
Period
Data Released
Survey
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
AUG
2014
09/19/2014 12:30 GMT
2.1%
2.1%
-58
-20
August 2014 Canada Consumer Price Index (CPI)
Canada’s Consumer Price Index (CPI) held steady at an annualized rate of 2.1% in August, while the core CPI unexpectedly increased to 2.1% from 1.7% in July, marking the highest reading since May 2012. Though the rise in core inflation may put increased pressure on the Bank of Canada (BoC) to raise the benchmark interest rate, it seems as though the central bank will retain its neutral tone for some time as the fundamental outlook remains clouded by the weakness in global growth. The better-than-expected core inflation print propped up the Canadian dollar, with the USD/CAD dipping below 1.0900 following the release, but the loonie struggled to hold the gains during the North America trade as it closed at 1.0957.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
To be added to David’s e-mail distribution list, please follow this link.
Trade Alongsidethe DailyFX Team on DailyFX on Demand
Looking to use the DailyFX Trade Signals LIVE? Check out Mirror Trader.
New to FX? Watch this Video
Join us to discuss the outlook for the major currencies on the DailyFXForums
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.Learn forex trading with a free practice account and trading charts from FXCM.
Source: Daily fx