Forex Trading Library

Trading Canada’s Inflation Data: Is It Only About Inflation?

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During the Asian session, the US Dollar had a blast, rising to its highest level since 2003 against all major currencies, as the Federal Reserve Chair Yellen kept the door open for a rate hike in December. The Index is currently trading around 101.15, which raises more red flags for the slowing economy. However, in our article today, we will discuss the possible outcomes of the Canadian inflation data, which will be released during the upcoming US session, which should be watched very carefully.

Definitions:

  • Consumer Price Index: This index measures the change in the price of goods and services purchased by consumers. It is released monthly, about 16 days after the month ends and is also referred to as CPI.
  • Core Consumer Price Index: This index also measures the change in the price of goods and services purchased by consumers but excludes food and energy. Food and energy prices account for about a quarter of the CPI, but they tend to be very volatile, hence distorting the underlying trend. The FOMC usually pays more attention to the core data, so do traders.

Why Is This Important?

CPI & Core CPI: 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.

Expectations

Indicator

Forecast

Prior

CPI

0.2%

0.1%

Core CPI

0.3%

0.2%

Today’s expectations seem to be encouraging, the CPI is expected to rise by 0.2% probably due to the latest rally in energy prices on hopes that OPEC will announce a deal by the end of this month. However, the Core CPI is set to rise by 0.3%, which would signal a potential inflation pick up over the coming months as the Core CPI measures the change in the prices of the goods and services excluding energy products.

Such outcome would have a notable impact on the markets, as this would ease the possibilities for further easing and/or dovish tone by the Bank of Canada at its next meeting. Therefore, traders should be watching the Core CPI more than the CPI today and as always.

Is It Only About Inflation Data?

It is not. Why? Because there is a very high correlation between Crude Oil and the Canadian Dollar. If you are not aware, there is a meeting in Doha between some of the OPEC members to discuss the Crude Oil prices and how to balance the prices. So far, there are some signs that a deal is possible by the end of this month.

However, this has been the case since the beginning of the week, where OPEC members promised the world that they would reach a deal soon, but so far, it’s almost the end of the year with no deal. Should we expect a deal anytime soon? I believe no, they might just keep the hopes higher to keep the prices balanced.

What Does Today’s Meeting Mean for CAD

It’s complicated, let’s say that the inflation data came in weaker than expected, which should push USDCAD higher. However, if OPEC kept the hopes significantly higher for a deal by November 30th, this would push the Crude Oil prices higher, while USDCAD might turn around and decline back below 1.35. The opposite is also true.

Meaning, if the figures were weaker, while OPEC decided to keep on delaying, this would push Crude Prices lower, and would help USDCAD to keep on pushing higher, probably above 1.36. Therefore, you need to keep an eye not only on the inflation data, but follow the news about OPEC, specifically today.

 

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