Strong Canada CPI could boost Loonie, not well for economy though

Today Canada CPI would be released at 13:30 GMT.

Canadian Dollar weaken sharply this year to trade as low as 1.47 against Dollar as oil price in January dropped sharply to new recent low and below $30/barrel. Since then it has bounced back swiftly riding over relatively higher oil price and more so due to weaker USD. Due to relatively weaker Dollar, it hasn't depreciated in February, despite drop in oil price.

• The above indicate, Dollar leg is providing major guidance to the pair.
• With oil price weak and Bank of Canada providing no further cues to monetary policy focus will turn towards economic dockets for Canadian dollar leg.

Today's CPI numbers either might provide strength to Loonie, which would help its journey to stronger against USD or else it would raise bets of another cut by Bank of Canada (BOC).

Past trends -

• Headline monthly CPI has been declining since last March and in December it has dropped to negative -0.5%. Yearly consumer price after bottoming to 0.8% has been rising steadily and in December it came at 1.6%.

• After holding above zero, since February, last year, core monthly CPI has fallen to negative -0.5% in December.

Today, median estimate shows, core inflation is expected to rise at 1.9% y/y.

Canadian Dollar is currently trading at 1.378 per Dollar. If oil rise, Loonie could correct to 1.29 over weaker USD.

However, stronger Loonie will be detrimental for Canda, as it would provide lower cover for oil exporters. Candian sour crude already trades at heavy discount to lighter WTI. So weaker Loonie is essential for better weathering of economy.