TheNews

Trading the News: Canada Consumer Price Index (CPI)

Another uptick in Canada’s Consumer Price Index (CPI) may rattle the near-term rebound in USD/CAD as it puts pressure on the Bank of Canada (BoC) to deliver another rate-hike over the coming months.

The BoC may continue to implement higher borrowing-costs as ‘the level of GDP is now higher than the Bank had expected,’ and Governor Stephen Poloz and Co. may prepare Canadian households and businesses for another rate-hike at the next meeting on October 25 as the central bank notes that ‘there has been a slight increase in both total CPI and the Bank’s core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack.’

Canada’s Consumer Price Index (CPI) increased for the first time since January, with the headline reading climbing to an annualized 1.2% from 1.0% the month prior. Nevertheless, the core rate of inflation held steady at 1.4% per annum during the same period, but signs of budding price pressures may encourage the Bank of Canada (BoC) to further normalize monetary policy in 2017 as the central bank warns ‘the factors behind soft inflation appear to be mostly temporary.’ The Canadian dollar rallied followed the print, with USD/CAD slipping below the 1.2600 handle to end the day at 1.2583.

How To Trade This Event Risk

Bullish CAD Trade: Headline & Core Inflation Picks Up in August

• Need a red, five-minute candle following the report to favor a short USD/CAD trade.
• If market reaction favors a bullish loonie position, sell USD/CAD with two separate lots.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bearish CAD Trade: Canada CPI Falls Short of Market Expectations

• Need a green, five-minute USD/CAD candle to favor a short loonie position.
• Implement the same setup as the bullish loonie trade, just in reverse.

Potential Price Targets For The Release
USD/CAD Daily Chart



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