When is the Canadian consumer inflation (CPI report) and how could it affect USD/CAD?

Canada CPI Overview

Statistics Canada will release the consumer inflation figures for February later during the early North American session on Wednesday, at 12:30 GMT. The headline CPI is expected to have risen by 0.6% during the reported month as compared to the 0.5% increase in January. The yearly rate, however, is expected to decelerate further from 5.9% to 5.4% in February. More importantly, the Bank of Canada's (BoC) Core CPI, which excludes volatile food and energy prices, is estimated to climb by 0.8% in February and ease to 4.6% on a yearly basis as compared to 0.3% MoM and 5% YoY, respectively, in January.

Analysts at NBF offer a brief preview of the key macro data and explain: “A slight decline in gasoline prices, combined with a drop in the natural gas segment, should have benefited consumers during the month. The increase in food costs, meanwhile, could have moderated following January’s surge. Headline inflation could nonetheless have increased 0.5% MoM (0.2% after seasonal adjustment) on gains in several services categories. If we’re right, the 12-month rate could still drop six ticks to 5.3% on account of a strongly negative base effect. The annual rate of core measures should have moderated as well, with CPI-trim likely easing from 5.1% to 4.9% and CPI-median moving from 5.0% to 4.8%.”

How Could it Affect USD/CAD?

Given that the Bank of Canada (BoC) became the first major central bank to pause its rate-hiking cycle earlier this month, a softer domestic CPI print could weigh on the Canadian Dollar and assist the USD/CAD pair to regain positive traction. The upside, however, is likely to remain capped amid the prevalent US Dollar selling bias, led by expectations that the Federal Reserve will soften its hawkish stance.

Adding to this, a further recovery in Crude Oil prices from a fresh 15-month low touched on Monday is more likely to offset any disappointment from the Canadian consumer inflation figures. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the downside. Bearish traders, however, might refrain from placing aggressive bets ahead of the highly-anticipated FOMC meeting, starting this Tuesday.

Key Notes

  •   Canadian CPI Preview: Forecasts from five major banks, inflation growth to decelerate

  •   USD/CAD Forecast: 38.2% Fibo. level holds the key for bulls ahead of Canadian CPI

  •   USD/CAD: Canadian inflation may have a very limited impact on the Loonie – ING

About Canadian CPI

The Consumer Price Index (CPI) released by Statistics Canada is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.