Canada prints inflation figures for June a week after the Bank of Canada updated its monetary policies!
How can the issuance of a CPI affect Loonie pricing?
Check if you can get clues from these points:
Focus on the event:
Canadian Consumer Price Index (CPI) and inflation data for June 2023
When will it be released:
July 18, 2023 (Wednesday), 12:30 PM GMT
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
- Headline CPI m / m: It is expected to remain at 0.4%.
- Cost per public/public address install: 3.1% compared to the previous 3.4%
Related data since the last data event/release:
- Canada added 60,000 net jobs in June (5k expected; -17.3k ex); The unemployment rate rose from 5.2% to 5.4% as more people looked for work
- Ivy PMI For the month of June: 50.2 vs. 53.5; Employment Index: 57.6 vs. 56.2 previously; Price Index: 60.6 vs. 60.3
- In its July statement, the Bank of Canada said the slowdown in inflation came mostly from easing, not lower energy prices core inflation
- BOC:With the large price increases in the past year from the annual data, There will be less near-term bearish momentum in CPI economic inflation“
Previous editions and the impact of the risk environment on CAD
June 27, 2023
CAD overlay chart against TV majors
Event Results/Price Action: Monthly CPI hikes in Canada slowed from 0.7% to 0.4% in May, which contributed to the annualized CPI decline from 4.4% to 3.4%.
Not surprisingly, the lower-than-expected CPI numbers dampened the odds of another BOC rate hike.
The Canadian dollar, already weakened by general risk aversion, embarked on a week’s downtrend that saw the Canadian dollar close the week lower against its major peers.
Risk Environment and Internal Market Behaviors: Barring pockets of strong data releases, the markets were in a risk-on mood for most of the week.
Nor has it helped central banks like the Federal Reserve and European Central Bank maintain their hawkish tone and inspired fears of slowing global growth.
Safe havens such as the dollar and gold gained ground while Crude Oil and Comdol prices saw bearish swings throughout the week.
May 16, 2023
CAD overlay chart against TV majors
Event Results/Price Action: Canada posted stronger-than-expected inflation data for April, posting a 0.7% m/m rise in the core CPI after a previous 0.5% rise. This translates to a slight uptick from 4.3% yoy in March to 4.4% in April.
The Canadian dollar had already had a strong start to the week, supported by higher oil prices, and continued to rally after Bank of Canada President McCullum said it was too early to talk about interest rate cuts.
Risk Environment and Internal Market Behaviors: Fading fears of a global recession also helped lift higher-yielding assets during the May trading week, allowing crude oil prices to make the most of the IEA’s improved demand outlook.
US debt ceiling concerns also eased when House Speaker McCarthy appeared optimistic a deal could be struck the following week.
Price action odds:
Possibilities of feeling risky: Risk has been the name of the game since earlier this week when a slower-than-expected US CPI report inspired hopes of a “peak rate” from the Federal Reserve and other major central banks.
That tone may change slightly ahead of the Canadian CPI release with the latest round of Chinese economic updates (Gross Domestic Product, Industrial Production, Retail Sales) due out next week on Monday. This batch of data tends to influence broad risk sentiment, and with the recent Chinese PMI data showing sluggish conditions, it is likely that we will see further weakness next week.
Whatever the case, the overall risk sentiment is likely to take its cues from China on Monday and Tuesday, barring any surprise headlines.
Canadian dollar scenarios:
Possible base scenario: Markets expect Canada’s annualized CPI to ease in June, but excluding last year’s ‘peak’ price hike as a core rate, it is likely that we will see a further slowdown in price growth for the month.
And if the risk sentiment tends to be negative, which is a possible scenario if the Chinese updates come out weaker than expected, then the Canadian dollar could see losses after the release, especially against “safe havens” such as the Japanese yen and the Swiss franc. Of course, the odds of attracting sellers are likely to rise the weaker the actual reading relative to the forecast/previous read.
The degree of downtrend may also depend on positioning as well and the Canadian dollar has been a net loser so far in July. Unless we see a significant bounce before the CPI release, the downside in the CAD could be limited, except probably for the greenback given the bearish sentiment building on the US dollar at the moment.
Alternative scenario:
With the Ivey PMI indicating an uptick in price sentiment and Canadian jobs data and surveys showing resilience, there is a chance that Canadian inflation data will come in higher than expected/previously.
This would likely lead to an immediate rally in the Canadian dollar against the majors, but would likely be short-lived given the outlook for risk sentiment to be negative.
If sentiment tends to be positive (eg China surprises with strong updates), then we could see an extended bounce higher in the CAD as this scenario is likely to attract some profit taking who have been short CAD throughout July, and possibly some speculators. On the rise of the Canadian dollar, which may play a role in the expectations of hawkish statements coming from the Bank of Canada in the future.
Watch for a long technical setup in the Canadian dollar against the safe-haven currencies in this scenario, especially against the US dollar given the recent bearish turn and the Japanese yen.