Canada’s economy swooned in the 4th quarter with the economy shedding jobs in both October (-54K) and November (-19K). However, in December, there was a bounce back with 18K jobs gained in the economy, though that was still only the 2nd month out of the last 6 in which job growth was positive. The forecast for January is for another positive month, with 23.3K jobs expected to be added by the economy.

This Canadian inflation report should carry some important weight for the Canadian dollar. A stronger-than-expected release could mean the Canadian dollar extend its move and attacks the parity level while a reading that is softer than expected could undermine the Canadian dollar and causes it retrace its recent gains against the USD.

The Bank of Canada held its overnight rate steady at 1% as expected, the 16th straight month that rates have been on hold. The statement did not give much in the way of clues as to the prospect for interest rates going forward, but ended its statement saying that “there is considerable monetary policy stimulus in Canada.” The statement said that the overall outlook for the Canadian economy is little changed from October.

Oil prices broke above the $100 a barrel level today, pushing above the resistance we saw in Friday’s trading session. The reason for the jump higher were rising tensions in the Middle East on the back of Iranian war games as well as an admission by Syria that they have cut their oil production as a result of sanctions by European countries. One currency that certainly has a chance to rally from higher oil is the Canadian dollar.

The GDP release is another sign post for the Bank of Canada to use as it assesses the strength of the economy and considers its monetary policy stance in 2012. A stronger than expected GDP reading would go hand in hand with the strong retail sales report we saw earlier in the week and would suggest that the BOC continues to be at the head of the pack in terms of expectations for interest rate differentials and keep the momentum in favor of the Loonie in the USD/CAD pair.

In today session we had 2 key developments which should favor the Canadian dollar – not only in today session but also in the coming weeks. The two reports were stronger-than-expected retail sales as well as a jump in oil prices. The USD/CAD tests the 200-ema in the hourly timeframe and is an important level to see if these fundy developments can help give the CAD a boost.

The Bank of Canada struck a slightly hawkish tone in their last meeting as the bank sees inflation a bit stronger than it expected. On Tuesday we get the latest reading on consumer prices. The expectations is for modest increases in monthly terms for the headline (0.1%) and core (0.2%) readings. Can higher prices data keep the BOC at the head of the pack of central banks that will hike rates in 2012?