CPI is often misunderstood in forex, actual CPI measure of inflation, and inflation is bad for the currency because it will increase the interest rate.
The fundamental reason for a person to invest is to make profit, the lowest benefit of a risk is 0%. So if someone hold bonds issued by the Canadian Govt then I do not have a risk, Because The Canadian Govt can not default on its own bonds.
Thus, when high interest, people will buy stocks, because investors will get higher revenue at a high risk investment.
And the interest rate is determined based on inflation.
CPI means when goods rose and currencies fell, so the higher CPI worse impact on the currency.
So, if an anulized CPI of less than 1%, then the BOC would not be increasing the interest rates in 2014 too, roomates would cause a weakness in the Canadian dollar.
So, if we see a 2% annualized inflation, the central banks like it, so No Change in Interest rate outlook.
This meens if the annualized CPI is Close to 3% we should see a drop in the value of the Currency .... If however we see a CPI number greater than 3% (Anuallized) then the central bank will think of raising interest rates to curb inflation ... this would mean the value of the currency should increase of.
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