When is the Canadian consumer inflation (CPI report) and how could it affect USD/CAD?

Canada CPI Overview

Statistics Canada will release the latest consumer inflation figures for August later during the early North American session on Wednesday, at 12:30 GMT. The headline CPI is expected to decline by 0.1% MoM as compared to a modest 0.1% rise reported in July. Furthermore, the yearly rate is anticipated to decelerate from 7.6% to 7.3% in August. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise by 0.3% MoM in August and come in at 6% on a yearly basis, down from 6.1% in July.

Analysts at RBC Economics offer a brief preview of the report and explain: “We look for a dip from 7.6% in July to 7.2% in August – down from a recent peak of 8.1% in June. But beneath the weakening headline number, some prices are still powering up. Food price growth likely accelerated again. And we look for the rate excluding food and energy products to hold steady at 5.5%. Alongside this, the Bank of Canada’s preferred core inflation measures also likely remained elevated. We continue to believe the headline inflation rate has hit its peak as lower commodity prices and easing global supply chain pressures lower growth in goods prices. But we don’t expect ‘core’ measures to peak until later this year when higher interest rates start to cut deeply into consumer demand.”

How Could it Affect USD/CAD?

The Bank of Canada (BoC)focuses more on the core rate. If the reading comes in line with expectations or slightly above, it will fuel speculations the BoC will keep its aggressive stance. This might be enough to provide a modest lift to the Canadian dollar, though subdued action around crude oil prices could cap any meaningful upside. Conversely, a softer print should allow the USD/CAD pair to build on its intraday positive move amid resurgent US dollar demand.

Nevertheless, the fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside. Hence, a subsequent strength back towards testing the highest level since November 2020, around the 1.3345 region touched on Monday, remains a distinct possibility. The momentum could further get extended towards the top boundary of a multi-month-old ascending channel, currently placed just ahead of the 1.3400 round-figure mark.

On the flip side, the 1.3220-1.3210 region, coinciding with the overnight swing low, might continue to protect any meaningful pullback ahead of the 1.3200 mark. Any subsequent decline might still be seen as a buying opportunity and find decent support near the 1.3120-1.3115 region. This is closely followed by the 1.3100 mark, below which the USD/CAD pair could accelerate the fall towards the next relevant support near the 1.3055 horizontal zone.

Key Notes

  •   Canadian CPI Preview: Forecasts from five major banks, core inflation to stay high

  •   USD/CAD Forecast: Bullish potential intact, Canadian CPI eyed ahead of FOMC meeting

  •   USD/CAD: Levels below 1.30 might remain out of reach for now – Commerzbank

About Canadian CPI

The Consumer Price Index (CPI) released by 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 purchasing 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.