USD/CAD: Trading the Canadian Core CPI

17 June 2016, 13:14
Sherif Hasan

Canadian Core CPI, is considered on of the most important inflation indicators. Core CPI excludes the most volatile items which are included in CPI, hence it is considered a more reliable measurement of inflation. A reading that is higher than the market forecast is bullish for the Canadian dollar.

Here are all the details, and 5 possible outcomes for USD/CAD.

Published on Friday at 12:30 GMT.

Indicator Background

Core CPI differs excludes eight volatile components which are found in CPI, such as food and energy prices. The indicator is closely watched by the Bank of Canada, and inflation levels are an important factor in the central bank’s monetary policy stance.

Core CPI posted a modest 0.2% in April, beating the estimate of 0.1%. The forecast for the May reading stands at 0.3%. Will the indicator surprise the markets and beat the estimate?

Sentiments and levels

The Fed kept rates at current levels at this Wednesday’s policy meeting and sounded cautious about the economy. Still, market sentiment is fairly positive towards the US dollar, which has pushed its Canadian cousin back above the 1.30 level. So, the indicator is bullish on USD/CAD towards this release.

Technical levels, from top to bottom: 1.3367, 1.3219, 1.3081, 1.2990, 1.2780 and 1.2663

5 Scenarios

Within expectations: 0.0% to 0.6%: In this scenario, USD/CAD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
Above expectations: 0.7% to 1.1%: A reading above expectations could push the pair below one support level.
Well above expectations: Above 1.1%: An unexpectedly sharp rise in inflation could push USD/CAD downwards, breaking two or more levels of support.
Below expectations: -0.5% to -0.1%: A weak release could push USD/CAD upwards, with one resistance level at risk.
Well below expectations: Below -0.5%: A reading deep in negative territory would likely hurt the loonie, and the pair could break two or more resistance levels.

For more on the Canadian dollar, see the USD/CAD forecast.

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