In terms of FOREX trading the Canadian consumer price reports or index has its influence over the currency market and specifically on the currency pair of US Dollar and Canadian Dollar. Canadian consumer price reports can be traded in currency markets if expected consumer price index values differ greatly from the actual consumer price index values. Like consumer price indexes of other countries the Canadian consumer price index is used as a monthly indicator of Canadian upcoming monetary policies. The Bank of Canada is the governing authority that controls and uses the consumer price index data. The Canadian consumer price index indicates coming inflation trends in Canada.
The Canadian consumer price report quantifies the Dollar value of all the services and final goods purchased by the Canadian buyers. This attribute of consumer price index mark it as an important indicator of future inflation.
The government of Canada has defined yearly inflation target of 2%. If in case the monthly calculated CPI for Canada is greater than the target than the Bank of Canada will come into the action. In order to normalize the monthly consumer price index with yearly target of 2% the Bank of Canada will introduce a tight monetary policy. Tight monetary policy will reduce the supply of money in the open market, hence it will also assist to normalize inflation rate. Recently Canadian consumer price index rose by 3.1% that created alarming situation for the Bank of Canada. The Bank of Canada measures the consumer price index using its core index. Bank of Canada’s core index recorded a rise of 1.9% during last 12 months.
The currency market players regularly track the changes in consumer price index. If market player perceive growth in CPI, they tend to apply bullish stance over Canadian dollar. The most important currency player for Canadian currency market players is US Dollar and Canadian Dollar. As it has been discussed earlier that the growth expectation will cause bullish stance over the currency value of Canadian Dollar and if it is expected that there will be reduction in private spending and Canadian consumer price reports will also depict weaker position than we will observe a bearish impact over the currency value of Canadian Dollar. Therefore, as like US consumer price reports it can be concluded that the Canadian consumer price reports can also be traded only if there is considerable difference between the expected numbers and actual monthly results that are published monthly.