When is Canadian CPI report and how could it affect USD/CAD?

Canada CPI Overview

Statistics Canada will release the latest consumer inflation figures for January later during the early North American session on Wednesday, at 13:30 GMT. After contracting by 0.1% in December, the headline CPI is expected to rise 0.6% during the reported month. The yearly rate, however, is anticipated to keep a steady pace at the three-decade high of 4.8% YoY in January. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise 0.4% MoM in January and 4.6% YoY.

According to analysts at CIBC: “Food prices are the main upward threat to our forecast, but given the timing of the latest transportation issues and an increase in dairy prices, February should see the largest gain in that area. Overall, we forecast a 0.5% unadjusted monthly increase in prices, with the annual rate holding steady at 4.8%.”

How Could it Affect USD/CAD?

The report will be accompanied by the simultaneous release of the US Retail Sales figures and should infuse some volatility around the USD/CAD pair. A surprisingly stronger CPI print, similar to what the US and the Eurozone have experienced, would lift bets for more rate increases by the Bank of Canada and boost the domestic currency. Conversely, a softer reading should lend some support to the USD/CAD pair ahead of the FOMC meeting minutes, due later during the US session.

Ahead of the key data, the USD/CAD pair dropped a fresh weekly low and was pressured by a combination of factors. An uptick in crude oil prices underpinned the commodity-linked loonie and dragged the pair lower amid modest US dollar weakness. From current levels, any subsequent decline below the 1.2670-1.2665 region might stall near the monthly low, around the 1.2635 region. Some follow-through selling will be seen as a fresh trigger for bearish traders and set the stage for a further near-term depreciating move.

On the flip side, recovery back above the 1.2600 mark now seems to confront stiff resistance near the 1.2735 horizontal zone. Sustained strength beyond has the potential to lift the USD/CAD pair back towards the top end of a near three-week-old trading range, around the 1.2775-1.2785 region. This is closely followed by the 1.2800 mark, above which the pair could accelerate the momentum towards the 1.2835 region en-route the 1.2870-75 intermediate hurdle and the 1.2900 round-figure mark.

Key Notes

  •   Canadian CPI Preview: Forecasts from five major banks, not out of the woods yet

  •   USD/CAD Forecast: Canadian CPI/US Retail Sales/FOMC minutes eyed for fresh directional impetus

  •   USD/CAD: BoC tightening cycle should offer support to the loonie – ING

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 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.