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 June later during the early North American session on Wednesday, at 12:30 GMT. The headline CPI is expected to ease from 1.4% in May to 0.9% during the reported month. The yearly rate, however, is anticipated to surge to its highest level since 1982 and come in at 8.4% in June, up from 7.7% in the previous month. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise 0.5% MoM in June and accelerate to 6.7% on a yearly basis from the 6.1% in May.

According to analysts at RBC Economics: “This continued acceleration was likely largely driven by higher food and energy prices – both of which have been boosted by global pressures. Oil prices rose another 4.8% from May and consumer food prices have been surging in part due to higher commodity prices and acute supply chain disruptions. Roughly half of inflation recently has been driven by forces beyond our borders by our count. Inflation pressures are unlikely to ease sustainably to the BoC’s 1% to 3% target range until the economy, and labour markets, have cooled substantially.”

How Could it Affect USD/CAD?

A stronger print would reinforce expectations that the Bank of Canada would continue raising interest rates more aggressively to cool demand and achieve the inflation target. This should be enough to provide an additional boost to the already stronger Canadian dollar and set the stage for a further near-term depreciating move for the USD/CAD pair.

Conversely, a softer reading - though seems unlikely - is likely to be overshadowed by the prevalent US dollar selling bias. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the downside. Hence, a subsequent slide below the 50-day SMA, towards the next relevant support near the 1.2830-1.2820 zone and the 1.2800 mark, looks like a distinct possibility.

On the flip side, any meaningful recovery attempt might now confront stiff resistance near the 1.2900 mark ahead of the 1.2925-1.2930 region. This is followed by the 1.2960 hurdle, which if cleared decisively could trigger a short-covering move and allow the USD/CAD pair to aim to surpass the 1.3000 psychological mark.

Key Notes

  •   Canadian CPI Preview: Forecasts from six major banks, inflation continued to heat up in June

  •   USD/CAD Analysis: Bears pause near 50-DMA/50% Fibo. confluence, focus shifts to Canadian CPI

  •   USD/CAD: 50 DMA guards the downside ahead of Canadian inflation

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.