CAD Springs Higher as Inflation Rises Towards the BOC Target

Talking Points:

• Canadian inflation jumps to 1.5% in January
• Retail sales decline 1.8% in December
• Canadian Dollar jumps 40 pips against USD

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The Canadian Dollar rose 40 pips against its US counterpart on an impressive jump in inflation in January.

The Canadian Consumer Price Index was reported 1.5% higher since January 2013, which was the highest inflation reported since June 2012 and better than expectations for a 1.3% annual rise in consumer prices. Consumer prices rose 0.3% in January on a monthly basis, following the 0.2% dip in prices in December, according to Statistics Canada.

Canadian retail sales were also reported on Friday to have declined 1.8% in December, which was the worst drop in retail sales since December of 2012 and disappointed expectations for a 0.4% decline in retail sales.

The Bank of Canada said in January that the next interest rate move depends on data, but Governor Poloz also said that he is most worried about inflation underperformance. The BoC maintains a 2% target inflation rate. Therefore, an impressive rise in inflation may stop arguments at the BoC for a rate decrease. That’s why the Loonie posted gains following the release, although the gains may have been somewhat offset by the sharp decline in retail sales.

USD/CAD rose to a new 3-week high at 1.1194 before the inflation release, and fell back to 1.1132 after the CPI announcement. The pair may next find resistance by the resistance turned support at 1.1132, according to Technical Strategist Jamie Saettele.

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USD/CAD 1-Minute: February 21, 2014

Chart created by Benjamin Spier using Marketscope 2.0. Add DailyFX Support/Resistance to your charts at FXCM Apps.

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to [email protected] .