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Canadian inflation rises, retail sales plunge – USD/CAD ticks

Consumer prices in Canada rose by 0.3% and core prices by 0.2%. Both are above expectations. Year over year, the level of inflation now stands at 1.5%, more than 1.3% expected. However, retail sales plunged by 1.8% and core sales by 1.4%, both far worse than predicted. Canadian headline CPI was expected to rise 0.1% m/m after a drop of 0.2% last time. Core CPI was also predicted to tick up by 0.1% after a drop of 0.4% last month. Retail sales carried low expectations for a drop of 0.5% after +0.6% beforehand and core sales were predicted to rise 0.2%, half of the previous rise. All the data are for January.

The Canadian dollar had a terrible week, with USD/CAD breaking back above 1.10 and not stopping at all. The pair traded at around 1.1170 before the release. Now, despite the big miss in retail sales, the market prefers to focus on inflation. The loonie rises with the rise in inflation and USD/CAD drops 30 pips to 1.1140.

Update: USD/CAD continues falling and drops towards 1.1130.

The trigger for the big loonie sell off was a drop of 1.4% in wholesale sales, a second tier figure which was expected to slide by only 0.5%. However, after the C$ comeback, markets were probably ready to change direction once again, and this was the spark.

The multi-year high of 1.1224 looms above. 1.1111 serves as weak support. This is 0.90 on CAD/USD. For more, see the C$ forecast.

There is one more market mover for the pair this week: US existing home sales.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.