USD/CAD: Trading the Canadian Core CPI

Canadian Core CPI measures the change in the price of goods and services. Core CPI excludes eight volatile components, notably food and energy, production and growth of the economy. This helps make the reading more reliable and useful to analysts. A reading that exceeds 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 is a key consumer indicator, and traders and analysts pay close attention to inflation numbers, since inflation is an important indication of economic activity. A well, the central bank may adjust interest rates in order to keep inflation at desired levels.

The  Core CPI release in July declined by 0.4%, one of the worst readings in 2012. The markets are expecting a rebound in  August, with a forecast for a modern gain of  0.2%.

Sentiments and levels

Despite  a weak Canadian employment release, an improving US economy, high oil prices and a hawkish central bank have helped the Canadian dollar. Thus, the overall sentiment is bearish on USD/CAD towards this release.

Technical levels, from top to bottom: 1.00, 0.9950, 0.99, 98.40, 0.9725  and 96.67.

5 Scenarios

1. Within expectations: -0.1% to 0.5%: In this scenario, USD/CAD could show some slight fluctuation, but it is likely to remain within range,  without breaking any levels.
2. Above expectations: 0.6% to 0.9%: A reading above expectations could  push the pair  below one  support level.
3. Well above expectations: Above 0.9%: An unexpectedly sharp rise in inflation is bullish for the loonie, and the pair could break two or more levels of support.
4. Below expectations: -0.5% to -0.2%: A  poor release  could push USD/CAD upwards, with one resistance level at risk.
5. Well below expectations: Below -0.5%: Such a reading could hurt the loonie, and the  pair could break two  or more resistance levels.

For more on the loonie, see the  US/Canada forecast.