A1 Trading Company

July 17, 2023

How Will CAD & NZD Perform on CPI?

Frank Cabibi

Tomorrow, Canada will report important inflation numbers which could determine what the BOC decides to do with monetary policy going forward. Let's take a look at some CAD & NZD pairs and what setups look the best to us.

EdgeFinder Analysis

NZDUSD is now a +5 on the EdgeFinder. Price action is both bullish on the trend reading and seasonality history. COT shows a clear bias towards the USD which is likely a long term prospective. Retail is majority bearish on this pair. But what about in the short term?

Tuesday, NZD will announce their quarterly CPI numbers which could result in strong reaction from the market. A higher CPI could indicate more restrictions from the RBNZ which would be very bullish for the kiwi. However, if numbers come in cooler than expected, investors may interpret this as less hawkish for the RBNZ, thus a bearish kiwi.

CAD may be looking to change direction here on the 1D timeframe. With inflation news coming out on Tuesday as well, price action is already looking bullish on the day. Despite the stark sell off and cross below the rising trend line, this pair definitely looks like something to consider on the bullish side.

It's the same sort of argument for the NZD this week: higher or unchanged CPI would look bullish for CAD as the BOC may continue to hike despite economic concerns. We will have to see how this day closes before we can get more optimistic on price, but a more aggressive BOC looks good as Japan remains dovish.

NJ reads a buy at +4. Winning in every category but GDP and unemployment rate, the pair looks exceptional to the long side. The trend projection is flat with an upward reading for seasonality in July. Retail is mostly short this pair. COT shows a bullish lean toward kiwi and an increasingly bearish tone for the yen.

If inflation stays high above the 2% target range, it may cause further tightening down the road. Just like what we mentioned before, higher CPI or unchanged rates may look bullish for the kiwi. GDP growth remains a concern for the RBNZ as hiking has taken its toll on the economy, and a focus on inflation could lead to more contractions over time.

Retail Spotlight

Retail shows a majority bullish bias on CAD which could be concerning for the bulls. However, they seem to be mostly short NZD prior to CPI. The strongest readings are CADCHF and CHFJPY.

Smart Money Spotlight

An overview of Friday's report suggests a few things: indices are stronger, NZDJPY is now bullish leaning again, JPY is even weaker, metals stronger, USOil much more bullish, CAD weak however. The dollar, although net long, looks weaker this week as there were a handful more shorts in the market.

Fundamental Spotlight

On inflation data, Canada's economy seems healthier with a lower rate and steadily declining prices across the board. Meanwhile, NZD looks to be struggling with stubborn inflation, especially on the CPI side of the coin. If tomorrow's report is weaker (higher or unchanged), we could see an even stronger NZD this week.

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