US and Canadian inflation data are the main talking points on the econ calendar today

It's prices day for the yanks and the syrup swiggers as we get the latest inflation numbers from the US and Canada.

First to what's expected;

  • US CPI -0.1% exp vs -0.1% prior y/y
  • Core 1.7% exp vs 1.8% prior y/y
  • Canadian CPI 1.0% exp vs 1.2% prior y/y
  • BOC core 2.4% exp vs 2.4% prior y/y

Those are the headlines numbers to watch but for the US, keep an eye on the real weekly earnings number. There's no expectations but last month came in at -0.2% m/m and -2.2% y/y. Strong numbers here could counter any drop in the main headline numbers

Prices have held up in the US despite the fall in oil but there are signs from the other economic indicators that maybe there's more weakness to come. PPI prices keep sliding, import and export prices keep sliding, ISM prices were still contracting, yesterday's Philly Fed showed bigger price drops and it the same story across a host of other data points, including the all important wage numbers. It suggests that we see softer numbers today and the risk is that they're much softer than expected

US y/y CPI & core

Up in the frozen tundra that is Canada, the Thunderbird Stephen Poloz was touting the temporary factor in the CPI numbers through 2014 and has been partly proved right, more through luck than judgement. The oil price crash has helped bring down inflation, which was going up compared to most of the other major economies last year. There's signs that it's bottomed around 1.0% and the risk is that it springs back faster here than in the US.

With prices still weak in their biggest trading partner and raw material and industrial prices falling, it's likely that there's not too much upside risk but I don't think there's a massive downside risk either. The BOC core number is still well up and that probably tells the real story

Canadian y/y CPI & core

Trading it all is going to be tough for USDCAD traders as the pair will be pulled from both sides. The big moves will come if the numbers fall in favour of one currency and against the other, for example lower US CPI and higher CAD CPI, and vice versa.

For the straight dollar trade that is USD/JPY, even modest signs of a pick up in inflation will likely bring the buyers out once again. I would usually go with my 2 point variance on the numbers to see a decent reaction but we could well see the buck rise if the CPI is just flat instead of -0.1% as expected. If we do get it up 0.1% or more then we could get a decent move. The core number will be important as always and with my worries over the prices from the recent data this is maybe the number that is most at risk down to 1.5% or less and the dollar will come under pressure. Posting 1.8% or more and up we should go. As I mentioned above though, keep an eye on the earnings component as a gain there will wake the rate rise crowd right up

A brief look at the levels and the 120.60/70 area that was strong on the way up is becoming strong on the way down. 120.50/55, 120.20/25 will hold some support under there, and the bigger test will be around 119.90/120.00.

121.50/60 is still the big number on the upside before we have a crack at 122.00. Unless we see a big miss on expectations I would expect these levels to hold, but don't rule out the persistent appetite of buck buyers at the moment