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Canadian CPI Report Takes Centre Stage This Week

Canadian CPI Report Takes Centre Stage This Week

  • The CAD finished the week on a high note, surging versus its peers and gaining 0.5 percent against the US dollar on Friday. The robust jobs report, which showed significant headline improvements in Canadian job growth, a lower unemployment rate, higher pay in y/y terms, and stronger total hours worked, was the clear reason for the CAD's performance into the end of an otherwise lackluster week. Under the hood, some of the data was a little less remarkable; the majority of job gains were in the part-time category, and wage growth was a little sluggish.

Canadian domestic fundamentals continue to remain very strong

  • The February jobs report confirms that the Canadian economy is off to a great start in the first quarter. The Bank of Canada forecasted 2.0 percent growth, but the most recent consensus projections predict 2.8 percent increase in Q1. The 3.6 percent m/m increase in total hours worked across the economy in February shows some extra, significant upside risk to Q1 GDP. The demand for tighter monetary policy is evident, with inflation set to rise next week. A more aggressive monetary policy stance would strengthen the CAD, giving the Bank of Canada an additional advantage in its price-control war. Markets are pricing in the chance of a bit more than 25bps at the April policy meeting, but economists are sticking with a 1/4 point move, with the uncertain international situation perhaps a restraint on bolder action. Observe the USD/CAD Chart.

The week ahead

  • From a domestic perspective, the Canadian CPI report takes centre stage this week, but the schedule also includes a number of major US releases, including early survey data for March activity and the FOMC meeting, which is likely to deliver a 25bps raise. After two weeks of depressing headlines and increased uncertainty, markets may be responding to the situation in Ukraine to some extent. However, as Russia's prospects for a swift win fade, the risk of a more serious confrontation on the ground appears to be more plausible than a breakthrough in peace talks. Despite the strong economic background, headline risk remains a possible drag on the CAD if volatility rises in reaction. Fair value models suggest that the CAD should be trading in the low 1.26’s if volatility is contained. Check the past week's historical currency rates.
  • For the week ahead, support is located at 1.2550 while resistance is located around 1.28

Currency Chart

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