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 January later during the early North American session on Wednesday, at 13:30 GMT. The headline CPI is expected to rise by 0.7% during the reported month, more than the 0.6% fall in December. The yearly rate, however, is expected to ease to 6.1% from the 6.3% in the previous month. More importantly, the Bank of Canada's (BoC) Core CPI, which excludes volatile food and energy prices, is estimated to rise 0.2% in January and edge higher to 5.5% on a yearly basis as compared to -0.3% and 5.4%, respectively, in December.

Analysts at CIBC offer a brief preview of the key macro data and explain: “A slight rebound in gasoline prices, coupled with a further rapid increase in mortgage interest costs, could have seen prices rise by 0.8% on the month and the annual rate of inflation hold steady at 6.3%. However, further moderation in imported goods prices should mean that core inflation excluding food, energy and mortgage interest likely rose at a monthly pace which is broadly consistent with a 2% inflation target.”

How Could it Affect USD/CAD?

Ahead of the key release, the USD/CAD pair struggles to capitalize on its intraday positive move and once again fails near the 1.3500 psychological mark. A modest recovery in crude oil prices underpins the commodity-linked Loonie and acts as a headwind for the major. A stronger-than-expected Canadian CPI print will be enough to provide a fresh lift to the domestic currency and drag the pair further away from its highest level since January 6 touched last Friday.

Conversely, a weaker-than-expected report should reaffirm market expectations that the BoC will pause the policy-tightening cycle following eight rate hikes in the past 11 months. This, along with the underlying bullish sentiment surrounding the US Dollar, bolstered by bets for additional rate hikes by the Fed and looming recession risks, could boost the USD/CAD pair. Nevertheless, the data is likely to infuse some volatility ahead of the FOMC meeting minutes on Wednesday.

Key Notes

  •   Canadian CPI Preview: Forecasts from six major banks, downward path could see a minor detour

  •   USD/CAD Analysis: Setup favours bullish traders ahead of Canadian CPI

  •   USD/CAD to extend bounce towards December peak of 1.3700 on a move beyond 1.3530 – SocGen

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.