While the Canadian dollar has been quite strong recently, it hasn’t shown much of a sustained reaction to surprisingly strong economic data upon release, as the net employment change, housing starts, and Ivey PMI were all better than expected last week
However, inflation reports could have a bigger impact the Canadian dollar as the news could impact future decisions by the Bank of Canada. Headline CPI for June is projected to fall to an annual rate of -0.3 percent, while the BOC’s core measure is projected to hold fairly steady at 1.9 percent, down from 2.0 percent. Such results would suggest that any price declines are due purely to falling commodity costs, and as long as the core measures don’t fall sharply, the Canadian dollar shouldn’t react too strongly. However, if broader price pressures start to fall more steeply, concerns about deflation may arise and weigh on the currency. That said, the USDCAD pair ended Thursday trading above the 61.8 percent fib of 1.0783-1.1723 at 1.1143, which could offer solid support through Friday. On the other hand, a break lower could target the next level of support at 1.0985/1.1000.
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