Canadian Dollar Rebounds after Stronger than Expected CPI

Canadian Dollar rebounds in early US session after stronger than expected inflation data. CPI rose 0.7% mom, 1.7% yoy in January. The annual rate slowed from 1.9% yoy in December but beat expectation of 1.5% yoy. CPI core common accelerated to 1.8% yoy, up from 1.6% yoy. CPI core median was unchanged at 1.9% yoy. CPI core trim slowed to 1.8% yoy, down from 1.9% yoy. Canadian Dollar is now trading as the strongest one for today, and reversed some of earlier losses and be mixed for the week. Elsewhere in the forex markets, Dollar remains the strongest one for the week, followed by Sterling. Kiwi and Aussie are the weakest ones.

UK Prime Minister Theresa May will set out her visions regard post Brexit relationship with EU in a speech next Friday. The announcement came after May and her senior cabinet members met at Chequers to hammer out the position. May’s spokesman said that "It was a very positive meeting and a step forward, agreeing the basis of the prime minister’s speech on the future relationship." A sticky point is the rights of EU nationals during the transition period. May’s proposing of them having fewer rights than those already in the UK prompted furious response from EU. Another point is what kind of trade relationship would UK want to have.

BoE Deputy Governor Dave Ramsden said that productivity growth is weak currently but will improve over the coming years. He emphasized that will be a key factor for monetary policy. He pointed to MPC’s view that economy’s speed limit is likely to be around 1.5 percent." And, "with very little spare capacity in the economy, even the unusually weak actual growth of around 1.75 percent over the forecast … is still sufficient to generate excess demand." Ramsden was one of the two MPC members who dissented last November’s rate hike.

On the data front, Eurozone CPI was finalized at 1.3% yoy in January, CPI core at 1.0% yoy. German Q4 GDP growth was finalized at 0.6% qoq. New Zealand retail sales rose more than expected by 1.7% qoq in Q4. Japan national CPI core was unchanged at 0.9% yoy in January, corporate service price rose 0.7% yoy.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2667; (P) 1.2709; (R1) 1.2748; More….

Breaching 1.2624 minor support suggests temporary topping at 1.2757. Intraday bias in USD/CAD is turned neutral first. Further rise will remain in favor as long as 1.2450 support holds. Above 1.2757 will target 1.2919 key near term resistance. We’d be cautious on strong resistance from there to limit upside. However, break of 1.2450 will argue that rebound from 1.2246 is completed and turn bias to the downside for this support.

In the bigger picture, the rebound from 1.2246 is mixing up the medium term outlook. Nonetheless, USD/CAD is staying below falling 55 week EMA (now at 1.2776), hence, the bearish case is in favor. That is, fall from 1.4689 is not completed yet. Sustained break of 1.2061 key support will carry larger bearish implication and target 61.8% retracement of 0.9406 to 1.4689 at 1.1424. However, firm break of 1.2919 will revive the case of medium term reversal and turn outlook bullish.

Economic Indicators Update