#CPIWatch - Will Sept CPI Come Hotter Than Expected? Oil & Treasuries in Focus
The market is on edge ahead of today's US CPI release (Oct 14, 12:30 GMT). After yesterday's Canadian Dollar strength, all eyes are now on US inflation.
1. Middle East Tensions, Oil Surge & CPI Risk
The narrative is clear: Middle East tensions are escalating. Continued conflict between Saudi Arabia and Iran-backed Houthis has pushed WTI Oil from a 6-week low of $86.32 to over $96.00.
This matters because:
- Canada, as a net oil exporter, is benefiting - USD/CAD has slipped to 1.4200 and CAD is up.
- For the US, surging energy costs are climbing with oil. This is why markets now expect Headline CPI to rise to 3.6% YoY in September from 3.4% in August.
My take: Will CPI come hotter?
Yes, I expect a hotter print. With oil up nearly $10 in a week, energy will lift headline CPI. Core CPI is also expected at 2.5% vs 2.4% previously. The risk is tilted to the upside. If oil keeps climbing towards $100, October CPI will be even hotter. I think oil will keep climbing as long as the geopolitical risk premium remains.
2. Fed Hike Bets & Treasury Yields
A hot CPI today will revive bets for another Fed hike before year-end. According to CME FedWatch, traders currently see no hike in October but a very strong chance of one in December.
If CPI beats 3.6%, rate-hike expectations will jump, putting upward pressure on Treasury yields.
Where do I see Treasuries heading?
Higher in the near term.
- Rising yields = Bearish for long-term Treasury ETFs like TBT
- Bullish for leveraged Treasury bears and yield plays.
In a high-yield environment, I am watching BZ (Oil) for momentum and TMF could see volatility as traders reposition.
For USD/CAD traders: The pair holds a near-term bullish bias above 20-day EMA at 1.4163. RSI at 59.0 shows room for further gains. But a hot CPI could strengthen USD and push USD/CAD back above 1.43. A soft CPI will do the opposite and support CAD further.
Conclusion: Today's CPI is a make-or-break for the Fed's December decision. I'm positioned cautiously long on Oil and short-term bullish on USD ahead of the data.
What is your expectation? Will CPI surprise to the upside?
#CPIWatch #USDCAD #Fed #CPIdata #Oil
