Statistics Canada released a surprising new batch of inflation data this morning: month-over-month CPI failed to meet market forecasts, declining by 0.3% instead of the anticipated 0.1%. Rather than being an outlier, the other measurements of CPI mostly followed suit, as both year-over-year Trimmed CPI and Median CPI likewise failed to meet expectations. Trimmed CPI’s poor performance, clocking in at a 5.2% increase year-over-year instead of the expected 5.5%, could be interpreted as particularly significant in that it excludes the 40% most volatile prices. This may theoretically set CAD fundamentals apart from USD, in that the Federal Reserve has incentive to keep hiking interest rates due to stubborn core inflation, while the Bank of Canada no longer does. Regardless of your overall Canadian Dollar bias, this is shocking CAD inflation news.
Best Pairs to Trade
While there are multiple ways to take this news, I personally have two takeaways: 1) USD/CAD bullishness now seems more compelling in light of the growing disparity between Canada’s inflation problem and the US’ inflation problem, and 2) the market reaction to this news could present discounted opportunities to buy CAD against less promising currencies. These readings are consistent with current EdgeFinder signals as well, as can be seen with the following pairs:
1) USD/CAD (Receives a 3, or ‘Buy’ Signal)
Price action has just hit a historic resistance zone, with Keltner Channels also indicating overbought conditions. Conservative traders may want to wait for a more optimal buying opportunity, though there may be some breathing room left before hitting the upper trendline and top of this resistance zone.
2) GBP/CAD (Receives a -6, or ‘Strong Sell’ Signal)
Price action is currently retesting the depicted zone as resistance and could potentially serve as an optimal selling point.
3) NZD/CAD (Receives a -4, or ‘Sell’ Signal)
Despite the bearish CAD news and support at 0.79, price action has still been bearish for this pair today. There is also ample room to potentially continue selling off before touching support from the lower trendline.
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