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

Canada CPI Overview

Statistics Canada will release the consumer inflation figures for December later during the early North American session on Wednesday, at 13:30 GMT. The headline CPI is expected to decline sharply by 0.5% during the reported month as compared to a modest 0.1% rise in November. Furthermore, the yearly rate is expected to decelerate from 6.8% to 6.3% in December. That said, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to edge higher by 0.1% in December and rise to 6.1% on a yearly basis from 5.8% in November.

Analysts at CIBC offer a brief preview of the key macro data and explain: “Canadians finally caught a break from ever rising prices in December, albeit mainly at the pumps. A sharp decline in gasoline prices will be the main factor behind an expected 0.6% MoM drop in headline CPI, and a deceleration in the annual rate to 6.3%, from 6.8% in the prior month. Used car prices could also have seen a slight dip. However, there are unfortunately a number of areas in which prices are likely to have risen even further, including food and potentially air fares as demand recovered closer to pre-pandemic norms over the holiday season.”

How Could it Affect USD/CAD?

Ahead of the release, the USD/CAD pair flat-lines around the 1.3400 mark and is influenced by a combination of diverging forces. A modest US Dollar strength acts as a tailwind for the major. Crude oil prices, meanwhile, hit a fresh two-week high and underpin the commodity-linked Loonie, which, in turn, caps the upside for the pair.

A surprisingly stronger Canadian CPI print will be enough to provide a fresh lift to the domestic currency and prompt aggressive selling around the USD/CAD pair. Conversely, a weaker-than-expected report should allow the pair to capitalize on its recent bounce from the lowest level since November 25 touched last Friday.

Key Notes

  •   Canadian CPI Preview: Forecasts from six major banks, inflation steering into calmer waters

  •   USD/CAD: Weak Canadian inflation to put selling pressure on the Loonie – Commerzbank

  •   USD/CAD struggles for a firm intraday direction, stuck in a range around 1.3400 mark

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.