Greetings, fellow Loonie merchants!
Canada is ready to launch a contemporary set of CPI information on Tuesday, which can considerably impression sentiment on the Financial institution of Canada’s financial coverage outlook.
What are the forecasts, and what stands out as the Canadian greenback’s subsequent transfer?
Occasion in Focus:
Canada’s Client Worth Index (CPI) and inflation information for October 2023
When Will it Be Launched:
November 21, 2023 (Tuesday), 1:30 pm GMT
Use our Foreign exchange Market Hours device to transform GMT to your native time zone.
Expectations:
Headline CPI m/m: 0.2% m/m forecast; -0.1% m/m earlier
Headline CPI y/y: 3.3% y/y forecast; 3.8% y/y earlier
Median CPI y/y: 3.5% y/y forecast; 3.8% y/y earlier
Trimmed CPI y/y: 3.4% y/y forecast; 3.7% y/y earlier
Core CPI y/y: 2.6% y/y forecast; 2.8% y/y earlier
Expectations as of Nov. 20, 4:00 pm GMT
Related Information Since Final Occasion/Information Launch:
Common common hourly wages rose 4.8% y/y in October vs. 5.0% y/y in September
Ivey PMI Costs Index in October was 60.0 vs 67.3 earlier
S&P World manufacturing PMI for October: “General, enter costs rose to the steepest diploma since April. There have been reviews that a rise within the rice of gasoline was the principal contributing issue behind larger enter prices. that stated, companies additionally famous that suppliers had been once more keen to boost their costs regardless of weaker demand for his or her items. As soon as once more, producers responded by passing on a proportion of their elevated prices to purchasers in the type of larger costs. Output worth inflation was stable general, and a little firmer than September’s three-month low.
S&P World Canada Providers PMI for October: “Worth information confirmed the continuation of elevated inflation, with working bills rising to the best diploma since February. Costs additionally rose at a steeper tempo, although to a a lot decrease diploma than seen for enter prices.”
Earlier Releases and Danger Atmosphere Affect on CAD
October 17, 2023
Overlay of CAD vs. Main Currencies Chart by TradingView
Occasion outcomes / Worth Motion:
In October, Canada reported the headline CPI charge for September was at -0.1% m/m (0.5% m/m forecast; 0.4% m/m earlier); core CPI was -0.1% m/m (0.3% m/m forecast; 0.1% m/m earlier). This occasion sparked an preliminary unload within the Canadian greenback towards the majors, and sure with assist of a number of web detrimental Canadian financial updates, pushed the Loonie decrease general by the tip of the week.
Danger atmosphere and intermarket behaviors:
This specific buying and selling week was blended as merchants tried to stability Center East battle developments, inflation updates and central financial institution actions. The standard correlations had been thrown off because of particular person asset drivers outweighing broad threat sentiment, resulting in positive factors in crypto, bond yields, oil and gold on the finish of the week.
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 took lengthy place income on what was a blended however barely better-than-expected client inflation replace. Fortuitously for CAD bulls, it appears to have been sufficient to maintain a giant below the Loonie general by the remainder of the week, however counter forex flows and a late bounce in oil had been probably drivers for the Loonie’s positive factors as properly.
Danger atmosphere and intermarket behaviors:
The broad threat atmosphere was usually blended this specific buying and selling week as merchants had been on the sidelines early, awaiting a very heavy central financial institution occasion calendar (most notably the Fed’s newest financial coverage choice). Most belongings had been additionally shifting on their very own specific drivers, together with enterprise sentiment survey and inflation updates.
General, it was a usually risk-off vibe, however excessive inflation / rate of interest themes additionally held robust, characterised by one other robust in bond yields within the latter half of the week.
Worth motion possibilities:
Danger sentiment possibilities:
It seems to be like markets have kicked off the brand new week with the identical vibes as final week, which leaned closely considerably risk-on and anti-Greenback. Hypothesis of a peak inflation atmosphere /central financial institution charge hike cycle (and potential 2024 charge cuts) appears to proceed to be the primary driver, however a cloudy image stays with some economies signaling weak spot forward, whereas others stay resilient towards excessive inflation / rate of interest circumstances.
Particular person asset tales appear to be getting a variety of weight currently as properly, weakening the same old broad market correlations. Equities and gold appears to proceed to seek out bids on falling bond yields / U.S. greenback, whereas oil is reacting to OPEC+ manufacturing minimize hypothesis vs. rising inventories information.
This week’s broad threat vibes will probably be influenced by central financial institution occasions on the calendar, most notably the FOMC assembly minutes on Wednesday. The upcoming spherical of flash enterprise survey information will even probably be a market driver on the finish of the week, probably signaling continued contractionary circumstances throughout many of the globe.
Canadian greenback eventualities:
Potential Base State of affairs:
Market expectations for the upcoming client costs replace from Canada appear to lean in the direction of displaying decrease charges of costs rising, which on an annualized foundation has been the sluggish development for the yr. On a month-to-month foundation, the info has been fairly uneven, characterised by surprisingly robust headline inflation reads for July and August, however an precise deflation studying in September.
In the mean time, the Loonie is shifting broadly decrease towards the majors, and on condition that broad threat sentiment appears to be web constructive and oil is shifting larger, FX merchants could also be pricing in decrease Canadian inflation charges in the intervening time.
If this continues going into the occasion and the precise numbers come out as anticipated, there could also be some short-term revenue taking from quick positions, extremely depending on how large/small of a distinction the precise learn is vs. forecast / earlier reads.
If the above “buy-the-rumor, sell-the-news” situation does play out, the Loonie might attract sellers after a bounce and if bearish reversal patterns seems, probably much like the October launch. The counter currencies that will create the very best high quality setups are these of central banks who’ve been comparatively hawkish (i.e., holding the door open to hikes) with their rate of interest outlook (just like the euro and the Swiss franc), or international locations with surprisingly robust financial information (just like the Aussie).
Various State of affairs:
The month-to-month headline CPI information does have a historical past of unusual market gamers, and if we see a situation of higher-than-expected month-to-month CPI charges AND the Loonie continues to maneuver decrease forward of the occasion, then the chances are fairly good we might get a giant bounce as merchants reprice the occasion.
Once more, the diploma to which the precise learn differs from expectations / earlier reads matter, so a very good apply with this occasion is prone to watch for the info to launch, see and assess the precise learn earlier than creating a short-term directional bias on the Loonie.
As we noticed prior to now two releases, the Loonie shaped a development in each instances that persevered by the remainder of the week. Until we get a significant oil or macro shock, this trending sort habits might develop, so leaping in proper after the occasion isn’t probably an important issue to probably see a constructive end result.
So, a bit of little bit of uncertainty means threat administration planning and execution may have a bit extra weight in the direction of attaining a constructive end result. Don’t skimp on taking the time to be sure to have a high quality commerce with a positive reward-to-risk ratio!
