- Canada Consumer Price Index (CPI) to Hold Above 2% Target for Eighth Consecutive Month.
- Core Inflation to Climb Annualized 2.5% to Mark the Fastest Pace of Growth Since February 2012.
Trading the News: Canada Consumer Price Index (CPI)
A slowdown in Canada’s Consumer Price Index (CPI) may spur fresh monthly highs in USD/CAD especially as the Bank of Canada (BoC) remains reluctant to further normalize monetary policy.
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, another uptick in the core rate of inflation may heighten the appeal of the loonie as sticky price growth undermines the BoC’s scope to retain the current policy, and Governor Stephen Poloz may sound increasingly hawkish in 2015 as the central bank head highlights the broadening recovery in the Canadian economy.
Expectations: Bearish Argument/Scenario
Release | Expected | Actual |
Existing Home Sales (MoM) (NOV) | -- | 0.0% |
Industrial Product Price (MoM) (OCT) | -0.4% | -0.5% |
Raw Materials Price Index (MoM) (OCT) | -2.5% | -4.3% |
Lower input costs paired with the slowdown in the housing market may trigger a sharp slowdown in price growth, and a dismal CPI print may heighten the bearish sentiment surrounding the Canadian dollar as it drags on interest rate expectations.
Risk: Bullish Argument/Scenario
Release | Expected | Actual |
Gross Domestic Product (Annualized) (3Q) | 2.1% | 2.8% |
Retail Sales (MoM) (SEP) | 0.5% | 0.8% |
Ivey Purchasing Managers Index s.a. (NOV) | 52.5 | 56.9 |
However, the pickup in economic activity along with the expansion in private sector consumption may produce a stronger-than-expected inflation report, and sticky price pressures may generate a near-term pullback in USD/CAD as it fuels bets for a BoC rate hike.
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 Miss Market Forecast
- 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: Canada CPI Highlights Stronger Price Pressures
- 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
USD/CAD Daily Chart
Chart - Created Using FXCM Marketscope 2.0
- USD/CAD may have carved a near-term top in December as the RSI quickly turns around from overbought territory.
- Interim Resistance: 1.1700 pivot to 1.1715 (100% expansion)
- Interim Support: 1.1470 (50% expansion) to 1.1480 (38.2% expansion)
Read More:
Price & Time: Important Timing Relationship Beckons USD/JPY
USD/CHF Threatens Long-Term Bearish Trend on Negative SNB Rate
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) |
OCT 2014 | 11/21/2014 12:30 GMT | 2.1% | 2.4% | -27 | -29 |
October 2014 Canada Consumer Price Index (CPI)
Canada’s Consumer Price Index (CPI) unexpectedly jumped to an annualized rate of 2.4% in October from 2.0% the month prior, while the core rate of inflation increased 2.1% to mark the highest reading since March 2012. Even though price growth holds above the Bank of Canada’s (BoC) 2% inflation target for the seventh consecutive months, it seems the central bank remains in no rush to further normalize monetary policy amid the weakening outlook for global growth paired with the decline in energy prices. The loonie strengthened against its U.S. counterpart following the better-than-expected print, with USD/CAD dipping below the 1.1200 handle following the release. However, the market reaction was short-lived as dollar-loonie worked its way back towards 1.1250 during the North America trade, with the pair closing the day at 1.1290.
--- 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
original source
