Statistics Canada is set to release the consumer inflation figures for January on Wednesday, at 13:30 GMT. The headline CPI is expected to increase by 0.7% during the reported month, more than the 0.6% decrease in December. The yearly rate is anticipated to ease to 6.1% from 6.3% in the previous month. Furthermore, the Bank of Canada’s (BoC) Core CPI, which excludes volatile food and energy prices, is projected to increase 0.2% in January and edge higher to 5.5% on a yearly basis as compared to -0.3% and 5.4%, respectively, in December.
Analysts at CIBC provide an outlook for the key macro data and explain: “A slight rebound in gasoline prices, coupled with a further rapid increase in mortgage interest costs, could have seen prices rise by 0.8% on the month and the annual rate of inflation hold steady at 6.3%. However, further moderation in imported goods prices should mean that core inflation excluding food, energy and mortgage interest likely rose at a monthly pace which is broadly consistent with a 2% inflation target.”
The USD/CAD pair is struggling to capitalize on its intraday positive move and once again fails near the 1.3500 psychological mark. A modest recovery in crude oil prices is underpinning the commodity-linked Loonie and acts as a headwind for the major. A stronger-than-expected Canadian CPI print will be enough to provide a fresh lift to the domestic currency, dragging the pair further away from its highest level since January 6 touched last Friday.
On the other hand, a weaker-than-expected report should reaffirm market expectations that the BoC will pause the policy-tightening cycle following eight rate hikes in the past 11 months. This, along with the underlying bullish sentiment surrounding the US Dollar, bolstered by bets for additional rate hikes by the Federal Open Market Committee (FOMC) and looming recession risks, could boost the USD/CAD pair. Nevertheless, the data is likely to infuse some volatility ahead of the FOMC meeting minutes on Wednesday.
The Consumer Price Index (CPI) is an important economic indicator released by Statistics Canada and 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.
In the context of the upcoming Canadian CPI release, it is important to consider the potential implications for the Canadian Dollar. The Canadian Dollar is a commodity-linked currency, so the price of commodities such as oil are important to watch. In addition, the CPI data will be important to watch, as it can give an indication of the state of the Canadian economy and the direction of the Bank of Canada’s monetary policy.
Ahead of the CPI release, the Canadian Dollar is being supported by a modest recovery in crude oil prices. A stronger-than-expected Canadian CPI print will be enough to provide a fresh lift to the domestic currency, dragging the USD/CAD pair further away from its highest level since January 6.
Conversely, a weaker-than-expected report should reaffirm market expectations that the BoC will pause the policy-tightening cycle following eight rate hikes in the past 11 months. This, along with the underlying bullish sentiment surrounding the US Dollar, bolstered by bets for additional rate hikes by the Federal Open Market Committee (FOMC) and looming recession risks, could boost the USD/CAD pair. Nevertheless, the data is likely to infuse some volatility ahead of the FOMC meeting minutes on Wednesday.
Overall, the upcoming CPI data will be an important indicator of the health of the Canadian economy and the direction of the Bank of Canada’s monetary policy. The data will be closely watched by traders and investors, as it could have a significant impact on the exchange rate of the Canadian Dollar. It is therefore important to pay close attention to the CPI data in order to gain an insight into the direction of the Canadian economy and the direction of the Bank of Canada’s monetary policy.
