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USD/CAD Rate Forecast: Post-FOMC Advance at Risk on Sticky Canada CPI

Trading the News: Canada Consumer Price Index (CPI)

Updates to Canada’s Consumer Price Index (CPI) may curb the USD/CAD advance following the Federal Reserve interest rate decision as the headline reading for inflation is expected to hold steady at 1.4% per annum in February.

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Signs of sticky price growth may boost the appeal of the Canadian dollar as it puts pressure on the Bank of Canada (BoC) to further embark on its hiking-cycle, and another 1.4% print may push Governor Stephen Poloz and Co. to endorse a hawkish forward-guidance at the next meeting on April 24 as the central bank ‘expects CPI inflation to be slightly below the 2 per cent target through most of 2019, reflecting the impact of temporary factors.’

However, an unexpected slowdown in Canada’s CPI may fuel the recent advance in USD/CAD as it dampens bets for a BoC rate-hike, and a below-forecast print may encourage Governor Poloz and Co. to alter the outlook for monetary policy as officials warn ‘it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook.’

Impact that Canada’s CPI had on USD/CAD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN

2019

02/27/2019 13:30:00 GMT

1.4%

1.4%

-10

+10

January 2019 Canada Consumer Price Index (CPI)

USD/CAD5-Minute Chart

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Canada’s Consumer Price Index (CPI) narrowed to 1.4% from 2.0% per annum in December, while the trimmed core reading for inflation held steady at 1.9% for the third consecutive month. A deeper look at the report showed the weakness was largely driven by a 3.1% decline in energy prices, with the cost for Transportation also slipping 1.0% in January, while food prices increased another 0.8% after rising 1.0% the month prior.

The Canadian dollar gained ground following the stickiness in the core CPI, but the reaction was short-lived, with USD/CAD bouncing back from a low of 1.3118 to close at 1.3156. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

USD/CAD Rate Daily Chart

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  • USD/CAD appears to be making a run at the monthly-high (1.3467) following the string of failed attempts to close below the Fibonacci overlap around 1.3290 (61.8% expansion) to 1.3310 (50% retracement), with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator comes off of trendline support and looks to extend the bullish formation from earlier this year.
  • With that said, the 1.3420 (78.6% retracement) to 1.3460 (61.8% retracement) region is back on the radar, but need a break/close above the overlap to open up the next topside area of interest around 1.3540 (23.6% retracement).

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— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

Source: dailyfx.com