Canadian inflation in focus – breakout for the USD/CAD ahead?

By Admiral Markets

Source: Economic Events April 17, 2019 – Admiral Markets’ Forex Calendar

Even though volatility in FX markets continues to drop, the USD/CAD finds itself faced with at least one last potential high-volatility event before Easter: the Canadian inflation rate.

In February, the annual inflation rate in Canada rose to 1.5 percent from 1.4 percent in the previous month, above market expectations of 1.4 percent. All eight major components were up year over year in February, with the shelter index (+2.4%) contributing most to the increase.

Interestingly enough, the CAD couldn’t really profit, but the USD/CAD kept on stabilising above the long-term trendline on a daily time-frame, still trading only slightly below the key resist around 1.3470.

In our opinion, this is overall a bullish sign for the USD/CAD, and if Canadian inflation comes in below the current expectations of 1.9% (YoY), such a reading would certainly add to the scepticism around the BoC and their willingness to be more restrictive in monetary policy.

This is particularly true after the latest BoC Business Outlook Survey suggested that the economic slowdown and trade issues globally have started to cause a problem for Canadian business confidence – which is currently at its lowest levels in three years.

That said, an inflation reading below expectations would increase chances of a near-term break of 1.3470 and level the path up to 1.3670.

Only a drop below 1.3250/80 would negate the technical bullish picture and activate 1.3080 as a target lower.

Source: Admiral Markets MT5 with MT5-SE Add-on USD/CAD Daily chart (between January 16, 2018, to April 16, 2019). Accessed: April 16, 2019 at 10:00pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the USD/CAD increased by 9.4%, in 2015, it increased by 19.1%, in 2016, it fell by 2.9%, in 2017, it fell by 6.4%, in 2018, it increased by 8.4%, meaning that after five years, it was up by 28.4%.

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Source: Canadian inflation in focus – breakout for the USD/CAD ahead?

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