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The Consumer Price Index (CPI), also known as inflation, measures the change in the price of goods and services charged to consumers. Canadian Core CPI excludes eight volatile components, notably food and energy prices. 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 12:00 GMT.

Indicator Background

The Core CPI indicator is scrutinized carefully by investors and currency traders,  since if  inflation is on the rise, Canada’s central bank may intervene and raise interest rates. Higher interest rates in turn leads to increased investment in Canada, thus increasing the value of the loonie.

The October Core CPI reading was 0.5%, beating the market prediction of 0.2%. This marked the fourth consecutive month of an upswing in the indicator. The forecast for November  has, however, been lowered  to 0.2%. Can the indicator again exceed the market forecast?

Sentiments and levels

The Canadian  economy has managed to stay on a steady course,  despite the serious difficulties in the U.S. Demand for housing is up, but employment figures were disappointing, and the outlook for the manufacturing sector is pessimistic. Thus, the overall sentiment is neutral on USD/CDN towards this release.

Technical levels, from top to bottom: 1.05, 1.0360, 1.0263, 1.0230, 1.0143 and 1.0060.

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 would  signal  higher inflation,  and could  push the pair  below one  support level.
  3. Well above expectations: Above 0.9%: An unexpectedly sharp rise in inflation would trigger higher interest rates, pushing USD/CAD downwards, and breaking two or more levels of support.
  4. Below expectations: -0.5% to -0.2%: A reading in negative territory could push USD/CAD upwards, with one resistance level at risk.
  5. Well below expectations: Below -0.5%: Such a reading would be bearish for the loonie, and USD/CAD could break two  or more resistance levels.

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

Expert score

5

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