USD/CAD rally above 1.3300 after Canadian CPI, buyers maintain control despite USD strength

  • USD/CAD regained strong positive traction on Tuesday amid broad-based USD strength.
  • Aggressive rate hikes from the Fed, further increases in US bond yields continue to push the US dollar higher.
  • Weaker Canadian CPI, weak oil prices weaken loon and remains favorable to USD/CAD.

USD/CAD continued higher during the first North American session and hit fresh daily highs around the 1.3315-1.3320 area in response to weaker inflation data at the Canadian consumption.

Statistics Canada reported on Tuesday that the headline CPI fell 0.3% in August and the annual rate slowed to 7.0%, two missing consensus estimates. More importantly, the Bank of Canada’s core CPI, which excludes volatile food and energy prices, was flat on a monthly basis and fell more than expected to a 5.8% level in year-on-year, compared to 6.1% in July. The data appears to have pushed back expectations of more aggressive policy tightening from the Bank of Canada, which alongside subdued action around crude prices continues to weaken loon related to the commodity.

The US dollar, on the other hand, built on its strong intraday rebound from one-week lows and remains well supported by growing acceptance that the Fed will raise interest rates at a faster pace to rein in the global economy. ‘inflation. This has led to a further rise in US Treasury bond yields and continues to act as an engine for dollar. Anyway, the encouragement at risk – as illustrated by the weaker tone around equity markets – gave further impetus to refuge U.S. dollars. The combination of the factors mentioned above contributes to the strong supply tone surrounding the USD/CAD pair.

It will now be interesting to see if buyers can capitalize on the moves ahead of the highly anticipated FOMC meeting, starting this Tuesday. The Fed is expected to announce its decision on Wednesday and is expected to raise rates another 75 basis points. In addition, updated economic projections, known as the dot plot, and remarks by Fed Chairman Jerome Powell at the post-meeting press conference will be watched for clues on the future path of the bulls. rate. Such advice will play an important role in influencing the USD and will give further directional momentum to the USD/CAD pair.

Robert Butler

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