Canadian CPI picks up despite downbeat expectations
Going into the Canadian inflation numbers, economists were concerned over downside risks to their forecasts. Naturally, with energy prices have suffered in previous months, expectations on the headline number were low, but we have to remember that Oil prices in Canada starting recovering ahead of the rise in the benchmark WTI contract and this looks like it has supported the main index.
Looking at the core rates, we also see higher levels, so the consumer is being presented with higher prices across the board, so naturally, we look to the spending figures in the months ahead.
Even so, the prospect that higher prices can be accommodated in the economy leads to the belief that the BoC can raise rates further later in the year, and this may give the CAD and edge against the USD and the EUR given the latter look to be on hold for now and into the early part of year.
That said, we have seen the CAD moving closely in line with global oil prices more than anything else, and broader risk sentiment has also had an impact. Having adjusted sharply from 1.3660 highs, we have seen a strong move lower which looks a little exhausted on the downside, so a lack of material response to the data may well have a lot to do with the short term metrics.
Initial support at 1.3230 is holding for now, though a breach of this level could see us retesting the 1.3190-70 which held well last week.