Trade Desk Thoughts - CAD RMPI

CAD RMPI (August) Actual -7.7%, Expected -3.3%, Previous 1.4%

Release Explanation: This is a report on the change in the price of raw materials purchased by Canadian manufacturers. It is considered to be a leading indication of consumer inflation because increased costs at the wholesale level can filter through to consumers.

Trade Desk Thoughts: In August, the price indexes for manufactured goods and raw materials in Canada declined 0.2% and 7.7% respectively from July. The strong decrease in prices for petroleum products brought to a halt the uninterrupted monthly growth observed since the end of 2007. The monthly decline of 0.2% in the Industrial Product Price Index (IPPI) in August was largely attributable to a 6.0% drop in prices for petroleum and coal products. Excluding petroleum and coal products, the prices of other industrial goods increased 0.8%, a rate of growth comparable to the average rate recorded in the previous two months.

Also contributing to the decline in August was a 3.1% drop in prices for primary metal products, as a result of lower global demand. In contrast, the increases observed in August mainly came from groups of industrial goods that are sensitive to the effect of the exchange rate, in particular, motor vehicles and other transport equipment. In fact, the Canadian dollar lost 4.1% of its value in relation to the US dollar in August, after edging up 0.4% in July. The relative weakness of the Canadian dollar against its US counterpart exerted upward pressure on prices overall, partly because some manufacturers set their prices in US dollars. If the exchange rate used to convert these prices had remained unchanged, the IPPI would have fallen 1.3% compared with July, instead of declining 0.2%.

Forex Technical Reaction: The cad advanced in the minutes after the release as the report implies a less threat of inflation. That allows the Bank of Cananda to contemplate lowering interest rates should it become necessary due to the financial crisis. Crude futures are up $1.20 and gold is down $3.20.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.