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Canadian Core CPI  is one of the most important consumer indicators. The index  measures the change in the price of goods and services charged to consumers. 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 from the CPI release in that excludes eight volatile components, such as food and energy prices. Traders should pay close attention to this inflation index, as an  unexpected reading can affect the  direction of USD/CAD.

Core CPI  has declined  over the past two consecutive readings.  However, the markets are predicting a stronger release in September, with an increase of 0.3%. Will the index push into positive territory this month?

Sentiments and levels

Tensions in the Middle East  recently pushed the price of oil higher, while the negative impact of risk aversion is cushioned with the fresh QE3 program. It seems that the pair’s downwards move can continue a bit more before we see a correction. The loonie also enjoys recent strong job figures  out of Canada. Thus, the overall sentiment is bearish on USD/CAD towards this release.

Technical levels, from top to bottom: 0.99, 0.9840, 0.98, 0.9725, 0.9667 and 0.96.

5 Scenarios

  1. 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.
  2. Above expectations: 0.7% to 1.0%: A stronger reading than predicted could push the pair below one support level.
  3. Well above expectations: Above 1.0%: An unexpectedly sharp rise in inflation could push USD/CAD downwards, breaking two or more levels of support.
  4. Below expectations:-0.4% to -0.1%: Another decline in the  index  could push USD/CAD upwards, with one  resistance level at risk.
  5. Well below expectations: Below -0.4%: A reading deep in negative territory would likely hurt the loonie, and the pair could break two or more resistance lines.

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