USD/CAD calm ahead of Canadian CPI

USD/CAD has posted small gains on Wednesday and is trading at 1.3631 in the European session.

Canadian dollar eyes inflation report

Canada releases the November inflation report later today. The inflation print will be closely watched by investors, as the releases could signal what action the Bank of Canada takes next. At the BoC meeting earlier this month, the BoC raised rates by 50 basis points for a second straight time, which brought the cash rate to 4.25%. The Bank’s rate statement said that inflation was “still too high” but noted that a drop in core inflation was a possible signal that price pressures were weakening.

Today’s report could show a mixed bag, which would leave BoC policy makers scratching their heads about which way inflation is headed. Headline CPI is projected to drop to 6.7%, down from 6.9%, while a key core inflation gauge, BoC Core CPI is expected to rise to 6.4%, up from 5.8%. Inflation remains the BoC’s number one priority, and a soft reading will lend support to the view that the BoC is close to winding up its tightening cycle. Conversely, if CPI is higher than expected, it will mean that the BoC still has more work to do and will continue to tighten until there is evidence of inflation falling lower. BoC Governor Macklem issued a mea culpa on Monday, saying that the BoC had badly miscalculated the rise in inflation and had to respond with steep tightening due to this “very big forecast error.” Macklem added that he believed core inflation would decline in a “meaningful way’ in the spring.

Canada’s October retail sales rebounded on Tuesday. The headline reading jumped 1.4% m/m, up from -0.8% and above the consensus of -0.8%, its best showing in five months. Core retail sales rose 1.8%, after the -0.8% reading last month and above the consensus of 0.8%. The forecast for November is bleaker, with headline retail sales expected to come in at -0.5%.

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USD/CAD Technical

• USD/CAD is putting on pressure on resistance at 1.3640. Above, there is resistance at 1.3762
• There is support at 1.3576 and 1.3454

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