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 September later during the early North American session on Wednesday, at 12:30 GMT. The headline CPI is expected to remain flat during the reported month as compared to a 0.3% fall in July. The yearly rate, meanwhile, is expected to ease from 7.0% to 6.8% in September. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise by 0.4% MoM in September and came in at 5.6% on a yearly basis, down from 5.8% in August.

Analysts at Citibank offer their take on the upcoming macro data and write: “We expect a modest -0.1% MoM decline in September CPI, with the YoY measures moderating further to 6.6%. Most important will be the trend in core inflation measures after the first signs of a pullback in August. Continued moderation in core CPI measures would be consistent with leading survey indicators that suggest further easing into year-end. These will be key for BoC’s decision in October. We expect a further easing in inflation data to support a shift to a 50 bps pace of hikes by the BoC in October.”

How Could it Affect USD/CAD?

Ahead of the key release, a goodish pickup in the US dollar demand assists the USD/CAD pair to gain some positive traction on Wednesday. That said, an intraday bounce in crude oil prices underpins the commodity-linked loonie and acts as a headwind for the major. A softer-than-expected Canadian CPI print should allow the major to build on the overnight recovery move from over a one-week low.

Conversely, a stronger reading could provide a modest lift to the domestic currency, though the immediate market reaction is more likely to remain limited. The prospects for more aggressive rate hikes by the Federal Reserve, along with looming recession risks, should continue to benefit the safe-haven buck and act as a tailwind for the USD/CAD pair. This, in turn, suggests that the path of least resistance for spot prices is to the upside.

Key Notes

  •   Canadian CPI Preview: Forecasts from seven major banks, signs of easing price pressures?

  •   USD/CAD clings to gains above mid-1.3700s, lacks follow-through ahead of Canadian CPI

  •   USD/CAD: Next potential objectives located at 1.4040 and 1.4210 – SocGen

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.