Canada CPI Overview

Wednesday’s economic docket highlights the release of the Canadian consumer inflation figures for August, scheduled later during the early North American session at 12:30 GMT. The headline CPI is expected to have decelerated sharply to 0.1% during the reported month from the 0.6% rise recorded in July. Meanwhile, the yearly rate is anticipated to have edged higher to 3.9% in August from 3.7% previous.

More importantly, the Bank of Canada’s Core CPI, which excludes volatile food and energy prices, is anticipated to remain well above the upper target and come in at 3.7% for August. The MoM rate, however, is forecast to ease to 0.2% from 0.6% previous, signalling that some of the transitory factors pushing up prices are fading.

How Could it Affect USD/CAD?

The BoC is ahead of other central banks in terms of withdrawing pandemic-era stimulus and expectations for further tapering appear to have been fully priced in. Hence, investors are seeking fresh catalysts to again turn bullish on the Canadian dollar. Hotter-than-expected inflation figures could turn out to be one such incentive.

Conversely, a softer print is more likely to be overshadowed by the emergence of some fresh selling around the US dollar, weighed down by diminishing odds for an earlier Fed tapering move. Apart from this, bullish crude oil prices might continue to benefit the commodity-linked loonie, suggesting that the path of least resistance for the USD/CAD pair remains to the downside.

That said, bearish traders are likely to wait for a sustained break below the overnight swing lows, around the 1.2600 mark, before positioning for any further depreciating move. The next relevant support for the USD/CAD pair is pegged near the very important 200-day SMA, around the 1.2525-20 region, ahead of the key 1.2500 psychological mark.

Key Notes

  •   USD/CAD: Loonie trades cheap, rallies to 1.28 an opportunity to sell – TDS

  •   USD/CAD Weekly Forecast: Federal Reserve dominates market considerations

About Canadian CPI

The Consumer Price Index (CPI) released by the Statistics Canada is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.