Boosted by the oil price rally, the Canadian dollar remains fairly supported despite the Bank of Canada this week reiterating that it will be cautious with respect to future hikes amid concerns over trade issues. Still, the central bank tried to sound optimistic about the economic outlook and if today’s inflation and retail sales figures show positive surprises then this could support the CAD further. But if they disappoint badly then we could see a sharp sell-off as investors’ expectations over the next BOC rate hike is pushed further out.
Headline Consumer Price Index (CPI) measure of inflation in Canada is expected to have risen 0.4% month-over-month in March after climbing by 0.6% the month before. In addition to the headline CPI, Statistics Canada will publish other measures of CPI including core, trimmed, median and common. It is worth taking into account these measures as well in order to get a full picture of inflation. Meanwhile, both headline and core retail sales in February are also expected to print 0.4% month-over-month each.
While the obvious choice for many traders may be the U.S. dollar/Canadian dollar (USD/CAD) currency pair when it comes to trading the Canadian data, the CAD crosses might actually offer better opportunities. Indeed, with the U.S. dollar trending higher during the past few days, it may be worth playing the CAD’s potential strength against a weaker currency such as the New Zealand dollar (NZD) or the British pound (GBP). In contrast, if the data disappoints then the USD/CAD may well be the one that actually takes off. So, we suggest that the CAD bears should be watching the USD/CAD for a potential rally, and the CAD bulls should monitor the GBP/CAD for a potential sell-off, post the data release.
In fact, the GBP/CAD is looking somewhat bearish after this week’s release of disappointing data in UK data and dovish remarks from the Bank of England’s Governor Mark Carney. Thus, if today’s Canadian data beats expectations then the GBP/CAD could fall further. From a purely technical perspective, the breakdown below horizontal support at 1.7850 is bearish. This level is now the first line of defense for the sellers. If this breaks then the cross could rise back towards the top of its bear channel around 1.7950.But if it continues to push higher and breaks Thursday’s high at 1.7970 and holds above it then this would end the short-term bearish bias.
Meanwhile, if the selling pressure on the GBP/CAD continues, then the next key target for the bears is around 1.7600, which is where the long-term bullish trend line comes into play. Below here is the 38.2% Fibonacci retracement at 1.7430.