How To Trade Canada’s Inflation Data

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BoC_Canada Inflation

After the dramatic impact of the ECB decision yesterday, the markets are still not done for the week, as the traders and investors are still digesting the ECB Chairman Mario Draghi confusing remarks, which led the Euro to decline below 1.09 after touching 1.1020’s, while global equities are still within a tight range. During the upcoming US session ahead, all eyes are headed toward the Canadian inflation data, which set to have a medium impact on the markets.

Definitions

Core Consumer Price Index: Change in the price of goods and services purchased by consumers, excluding the eight most volatile items. Volatile items account for about a quarter of CPI, but they tend to be very volatile and distort the underlying trend. The Bank of Canada pays most attention to the Core data – so do traders. This is among the few non-seasonally adjusted numbers reported on the calendar, as it’s the calculation most commonly reported.

Consumer Price Index: Change in the price of goods and services purchased by consumers. This is the most important inflation-related release due to its earliness and broad scope.

Why This IS Important For Traders

Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.

What Does It Mean To The Central Bank

Along with the global central banks, the Bank of Canada pays close attention to these figures as it represents the core inflation situation. Recently, Canada suffered from low inflation rates due to the volatility in Crude Oil prices. For the past three months, Canada had no inflation at all, which likely to be a drag on growth data. In return, if inflation stayed lower, the Bank of Canada might be forced to move again with further stimulus measures.

Canadian Dollar Reaction

The Canadian Dollar lost more than 19% of its value last year, while this year, it recovered only a small percentage of its last year’s loss, rising by 4.3% YTD. However, with Crude Oil prices stabilizing around $50, the Canadian Dollar might also stay within a tight range. Today’s inflation data might be the catalyst for another leg lower, especially that the estimates are not that optimistic. Any disappointment would increase the possibility of an action by the BOC in the coming months.

Market Expectations

Economic Indicator

Forecast

Prior

Consumer Price Index

0.2%

-0.2%

Core Consumer Price Index

0.2%

0.0%

Retail Sales

0.5%

-0.1%

Core Retail Sales

0.4%

-0.1%

Levels To Watch

Symbol

S3

S2 S1 Pivot R1 R2

R3

USDCAD

1.3018

1.3062 1.3146 1.3190 1.3274 1.3318

1.3402

EURCAD

1.4165

1.4272 1.4366 1.4473 1.4567 1.4674

1.4768

AUDCAD

0.9951

1.0006 1.0049 1.0104 1.0147 1.0202

1.0245

CADJPY

77.76

78.08 78.33 78.65 78.90 79.22

79.47

GBPCAD

1.5997

1.6044 1.6127 1.6174 1.6257 1.6304

1.6387

 

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Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.