ATFX foreign exchange marketFreespincodes: 20 todayFreespincodesStatistics Canada will release CPI annual rate data for April, with a previous value of 2.Freespincodes.9%, with an expected value of 2.7%, which is expected to decrease by 0.2 percentage points. Announced at the same timeFreespincodesThere are also core CPI annual rate data for April, with a previous value of 2%, and no expected value has been released.
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The picture above shows the annual rate of CPI in Canada. From a long-term perspective, the reading in April 2023 was 4.4%, and that in March this year was 2.9%. The total decline in 12 months was 1.5%, an average monthly decline of 0.125 percentage points. In the short term, the difference between the maximum and minimum readings in the last three months is only 0.1%, which is obviously fluctuating. The long-term trend is declining and the short-term trend is volatile, and the April CPI annualized rate data released tonight is expected to be lower than the previous figure, but not by much. The expected decline of 0.2 percentage points is more moderate, and the probability of achieving the expectation is higher.
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In terms of core CPI annual rate data, the data trend is in a clear long-term downward trend, and it is expected that tonight's data will be lower than the previous value of 2%. Over the past 12 months, the reading has fallen from a peak of 4.1 per cent to 2 per cent, a total decline of 2.1 per cent, or an average monthly decline of 0.175 percentage points. The declines in the last three months were 0.2%, 0.3% and 0.1% respectively, with an average decline of about 0.2%. Judging from this, the difference between the published value and the previous value tonight may be between 0.175% and 0.2%, that is, the published value is between 1.8% and 1.825%. Falling CPI data will strengthen expectations of interest rate cuts by the Bank of Canada, and USDCAD is likely to get a short-term boost.
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The picture above shows the trend chart of USDCAD long-period top and bottom labeling. In the five years from July 2011 to January 2016, USDCAD rose from 0.9405 to 1.4688, a cumulative increase of 56.17%, or 5283 points. During this period, the Fed kept its benchmark interest rate at an all-time low of 0% to 0.25%, raising interest rates by 0.25 basis points only in January 2016. From January 2016 to September 2017, with the rise of US benchmark interest rates, USDCAD entered a significant correction phase. From September 2017 to March 2020, the Fed's benchmark interest rate entered the downward channel again, and USDCAD continued to soar. From March 2020 to June 2021, the Fed's benchmark interest rate rose and USDCAD fell again.
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Comparing the trend of USDCAD with the change of Fed's benchmark interest rate, we can see that each round of loose monetary policy will lead to the rise of USDCAD; every tightening of monetary policy will lead to the decline of USDCAD. This is contrary to the traditional logic. According to the traditional logic, tight monetary policy is conducive to the rise of the dollar index, while loose monetary policy is conducive to the decline of the dollar index. The reason why the market is contrary to logic is market expectation. Market expectations tend to change ahead of monetary policy: when monetary policy remains loose, market expectations of the impending tightening of monetary policy are guided by expectations to buy the dollar index, leading to a rise in the US dollar index and USDCAD. And vice versa.
At present, the Fed's benchmark interest rate is as high as 5.25% to 5.5%, which is in a state of tightening. There are growing expectations that the Fed will cut interest rates in the fourth quarter of this year. From a long-term point of view, interest rate cuts are expected to lead to a decline in the dollar index, which drives USDCAD into a downward channel again.
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