Consideration, fellow Loonie merchants!

Canada is gearing as much as unveil a brand new set of CPI knowledge tomorrow, and these numbers are poised to have a notable affect on broad Financial institution of Canada coverage sentiment.

What are the expectations and what may very well be the subsequent transfer for the Canadian greenback?

Occasion in Focus:

Canada’s Client Worth Index (CPI) and inflation knowledge for September 2023

When Will it Be Launched:

October 17, 2023 (Tuesday), 12:30 pm GMT

Use our Foreign exchange Market Hours instrument to transform GMT to your native time zone.

Expectations:

Headline CPI m/m: 0.5% m/m forecast; 0.4% m/m earlier

Headline CPI y/y: 4.5% y/y forecast; 4.0% y/y earlier

Median CPI y/y: 4.1% y/y forecast; 4.1% y/y earlier

Trimmed CPI y/y: 3.9% y/y forecast; 3.9% y/y earlier

Core CPI y/y: 3.3% y/y forecast;  3.3% y/y earlier

Expectations as of Oct. 16, 5:20 pm GMT

Related Information Since Final Occasion/Information Launch:

Common common hourly wages rose 4.2% y/y in September, 4.3% y/y in August

Capability utilization fee slowed from 81.8% y/y to 81.4% in Q2 vs. estimated acquire to 82.5%, reaching its lowest stage since Q3 2020

Ivey PMI Costs Index in September was 67.3 vs. 66.7

S&P World manufacturing PMI for September: “Suppliers continued to boost costs, though softening market circumstances restricted their pricing energy. The web influence was the weakest enhance in enter prices within the present four-month run of inflation. Producers signaled ongoing success in pushing by means of greater enter prices to purchasers, with output prices rising additional in September. The speed of inflation was stable and above that signaled for enter costs.”

Earlier Releases and Threat Atmosphere Affect on CAD

September 19, 2023

Overlay of CAD vs. Main Currencies Chart by TradingView

Occasion outcomes / Worth Motion:

In September, the Canada CPI learn for August got here in at 4.0% y/y (3.9% y/y forecast; 3.3% y/y earlier), with the Core CPI learn at 3.3% y/y (3.5% y/y forecast; 3.2% y/y earlier).  The month-to-month learn was better-than-expected at 0.4% m/m vs. 0.2% forecast/ 0.6% earlier, and the core CPI learn fell from 0.5% m/m to 0.1% m/m.

It appeared that the markets usually took this as a decelerate in inflation circumstances as CAD proceeded to maneuver decrease by means of the remainder of the U.S. session towards the majors, but it surely must be famous that oil costs additionally fell on the session, doubtless drawing in CAD sellers as properly given their sturdy correlations.

Threat surroundings and intermarket behaviors:

The broad threat surroundings was usually blended this explicit buying and selling week as merchants have been on the sidelines early, awaiting a very heavy central financial institution occasion calendar (most notably the Fed’s newest financial coverage determination). Most belongings have been additionally transferring on their very own explicit drivers, together with enterprise sentiment survey and inflation updates.

Total, it was a usually risk-off vibe, however excessive inflation / rate of interest themes additionally held sturdy, characterised by one other sturdy in bond yields within the latter half of the week.

August 15, 2023

Occasion outcomes / Worth Motion: Canada’s July headline CPI got here in stronger than anticipated at 0.6% m/m versus the projected 0.4% uptick and earlier 0.1% acquire. The core model of the report got here according to estimates of a 0.5% enhance.

Nevertheless, the upbeat headline figures didn’t do the Loonie a lot favors, as broader market themes weighed on the commodity forex for essentially the most a part of the week.

Threat surroundings and intermarket behaviors: Threat-off flows remained in play all through the buying and selling week, as considerations about China’s development and monetary stability lifted demand for safe-havens.

Because it turned out, Nation Backyard – China’s high non-public property developer – missed some bond funds AND suspended the buying and selling of 11 of its onshore bonds.

As well as, the prospect of extra rate of interest hikes from the Fed additionally stored risk-taking in test, as merchants remained cautious of a possible recession.

Worth motion chances:

Threat sentiment chances: 

Market fears induced by geopolitics have pale a bit to start out the brand new week as diplomatic efforts to forestall the brand new struggle between Israel-Hamas from turning into a bigger regional battle may very well be seen. Hopefully additional de-escalation and peace is the end result from these efforts, however till then, this case stays fluid and can doubtless have affect on broad market sentiment within the short-term.

As talked about in our NZ CPI Occasion Information, we’ve bought a full financial calendar forward to probably affect market sentiment, with knowledge updates prone to assist the present driving themes of “peak inflation / fee hike cycles” and “slowing financial development doubtless forward.”

That might imply risk-on vibes if “peak inflation / fee hike cycles” is the motive force extra merchants lean on, or probably threat aversion vibes if “slowing financial development doubtless forward.” For now, it appears fairly balanced, however this week’s inflation updates might tip the scales a method or one other.

Canadian greenback eventualities:

Potential Base Situation:

That is undoubtedly a volatility occasion for Canadian greenback merchants to observe on Tuesday, however primarily based on the previous two releases, the market’s response to the Canadian CPI numbers could also be short-lived as merchants shortly returned focus to grease worth motion and broad threat sentiment to information their CAD biases in September and August.

That makes this occasion a possible candidate for a reactionary “wait-and-see” strategy to buying and selling the occasion, particularly on condition that tendencies have developed by means of not less than the subsequent day within the final two releases.

Which means the preliminary response is prone to have a constructive correlation to the Canadian CPI replace (i.e., greater than forecast / earlier is probably going to attract in consumers and vice versa), and in that case, threat managers ought to then look to issue within the broad threat surroundings / oil sentiment for CAD’s subsequent strikes towards the main currencies.

Within the case of a possible sturdy CA CPI learn (doubtless driving up odds of the Financial institution of Canada to be extra hawkish) and a at present neutral-negative broad threat sentiment lean, pops greater within the Loonie towards protected havens trending greater often is the pairs to observe and think about developing threat administration plans for if it is sensible to you.

Various Situation:

If the geopolitical state of affairs modifications to a way more constructive one (e.g., Israel-Hamas cease-fire, Irsael assault on Gaza delayed or canceled, no indicators of further international locations becoming a member of the battle, and so forth.), that would outweigh all different market drivers short-term, prompting a sell-off in oil and drive up risk-on sentiment.

Oil was in all probability the largest driver throughout these moments on the Loonie final week, which suggests an oil dip might drive the Loonie decrease short-term, overshadowing Canadian updates like inflation and retail gross sales arising or broad threat sentiment.

Total, a fluid geopolitical state of affairs plus a busy financial calendar means keep nimble with concepts and biases, and be very vigilant on threat administration execution!

This content material is strictly for informational functions solely and doesn’t represent as funding recommendation. Buying and selling any monetary market entails threat. Please learn our Threat Disclosure to ensure you perceive the dangers concerned.