Canadian CPI Overview
Wednesday's Canadian economic docket features the key release of consumer inflation figures for July, scheduled to be published at 12:30 GMT. The headline CPI is anticipated to have edged up by 0.2% in July, while the yearly is seen falling further to 1.7% from 2.0% recorded in the previous month. Meanwhile, the BoC's core CPI is expected to rise by 0.2% on a monthly basis and to 2.3% yearly rate during the reported month.
Meanwhile, analysts at Wells Fargo expect the annual rate to drop to 1.6% and explained - “Lower oil and broader energy prices are likely to weigh on CPI in July, and we forecast headline CPI inflation to slow to 1.8% in 2019 and pick up slightly in 2020.”
“As for upside inflation risks, core inflation may show resilience in July after the latest average hourly earnings figure quickened and Canada’s economy grew for the third consecutive month in May, providing further evidence of a stronger Canadian economy. Even though Canadian job creation slowed in July, the labor market remains strong and provides an additional upside risk for inflation.”
Deviation impact on USD/CAD
Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction on the pair is likely to be around 43-pips during the first 15-minutes and could get extended to 66-pips in the following 4-hours in case of a relative deviation of -0.86. Alternatively, the reaction to a higher than expected reading, with a relative deviation of +0.68 or higher could be around 61-pips in the first 15-minutes and 75-pips in the following 4-hours.
How could it affect USD/CAD?
Ahead of the important releases, the USD/CAD pair pulled away from two-month tops set in the previous session and was seen flirting with the 1.3300 round figure mark. A softer reading will be enough to provide the required momentum that should assist the pair to surpass the 1.3345 supply zone and aim towards reclaiming the 1.3400 round figure mark en-route the next major hurdle near the 1.3415-20 region.
Alternatively, a stronger reading might prompt some additional long-unwinding trade and accelerate the slide back towards the 1.3260-50 support area, albeit any subsequent slide is likely to be limited ahead of Wednesday's key event risk - the release of the latest FOMC policy meeting minutes - due later during the US trading session.
Key Notes
• Canadian CPI to drop sharply in July – Scotiabank
• USD/CAD Analysis: nears resistance cluster at 1.3340
• USD/CAD extends pullback as WTI remains firm, Canadian CPI/FOMC in the spotlight
About BoC's Core CPI
Consumer Price Index Core is released by the Bank of Canada. “Core” CPI excludes fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation, and tobacco products. These volatile core 8 are considered as the key indicator for inflation in Canada. Generally speaking, a high reading anticipates a hawkish attitude by the BoC, and that is said to be positive (or bullish) for the CAD.
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