The last trading day of the week comes with a few economic releases during the Asian and European sessions, and the US session has only one important report from Canada, which is set to have a notable impact on the markets ahead of the weekend. All eyes turn to the Canadian inflation data today, which is likely to be the key for CAD trends next week.
Definitions
Consumer Price Index: this index measures the change in the price of goods and services purchased by consumers over a month. This is the most important inflation-related release, which accounts for a majority of overall inflation. Inflation is important for the Bank of Canada’s policy and the valuation of the local currency
Core CPI: this index measures the price of goods and services purchased by consumers, but it excludes the 8 most volatile items, including Crude Oil. The bank of Canada pays most attention to the core data, and so do traders. A higher reading means the Bank of Canada will consider tightening its policy. In return, CAD may rise and vice versa.
Today’s Expectations
| Indicator |
Forecast |
Previous |
| Consumer Price Index YoY |
1.4% |
1.3% |
| Consumer Price Index MoM |
0.1% |
-0.2% |
| Core Consumer Price Index YoY |
2.0% |
2.1% |
| Core Consumer Price Index MoM |
0.2% |
0.0% |
Market Reaction
The estimates are mixed today; however, traders need to keep an eye on the Core CPI for the Year over Year, which is the most important index for the Bank of Canada. A higher reading would ease the speculations for any further policy actions by the Bank of Canada anytime soon; in return, CAD might rally across the board. On the other hand, a slowdown in YoY Core CPI would maintain the current expectations for further action by the BOC; in return, CAD may decline across the board.
USDCAD Outlook
Since may of this year, USDCAD has been trading within a tight range between 1.27 and 1.30, with no clear break above or below these levels. This keeps the sideway trend in place. However, today’s inflation figures might be the catalyst for a notable move.
From a technical analysis point of view, the pair has been declining for the past three days, breaking through some key levels. Yet, it is still trading above the 1.30 psychological support level, which should be watched closely because a break through that support may clear the way for further declines ahead, probably back to the 1.29 area.
On the upside view, the first immediate resistance stands at 1.3127, which needs to be watched closely. Disappointing inflation data might be the catalyst to test and possibly break above that resistance. If so, this would be a signal for another push above 1.3240 later next week.
Levels To Watch
| Symbol | S3 | S2 | S1 | Pivot | R1 | R2 | R3 |
| USDCAD | 1.3037 | 1.3045 | 1.3054 | 1.3062 | 1.3071 | 1.3079 | 1.3088 |
| EURCAD | 1.4615 | 1.4620 | 1.4630 | 1.4635 | 1.4645 | 1.4650 | 1.4660 |
| AUDCAD | 0.9967 | 0.9972 | 0.9981 | 0.9986 | 0.9995 | 1.0000 | 1.0009 |
| CADJPY | 77.07 | 77.12 | 77.18 | 77.23 | 77.29 | 77.34 |
77.40 |
