USDCAD Continues To Move Higher As Canadian CPI Disappoints

USD/CAD extends the bullish sequence from earlier this week, with the pair at risk for a larger advance as updates to Canada’s Consumer Price Index (CPI) does little to boost bets for another Bank of Canada (BoC) rate-hike in 2018. The loonie is selling off against the US dollar, the British pound and the Japanese yen, while making gains versus the euro and the Australian dollar. Last week, the Canadian dollar weakened as the US dollar strengthened. Thanks to accelerating US bond yields, the US dollar is becoming a relatively more attractive investment destination versus the Canadian dollar.

USDCAD Pushes Through

Bank of Canada Governor Stephen Poloz said that a recent increase in Canadian inflation does not automatically warrant a rate hike. As the BoC targets a 1-3% range, interest rates can temporarily rise above the Bank’s 2% target. Following guidance at the Bank of Canada’s most recent meeting, Governor Poloz is adopting an increasingly neutral tone. While last year’s rate hikes were part of an interest rate normalization plan, this year Poloz is signaling that rates are set to remain low for the foreseeable future.

This is a very light week for economic data relating to the Canadian dollar, as no significant data releases are scheduled for this week. Last week, the Bank of Canada maintained its existing interest rates, while suggesting that accommodative policies were set to continue. The USD/CAD exchange rate is currently above 1.2790. Intraday bias in USD/CAD remains on the upside for further rebound. However, we’re holding on to the view that rebound from 1.2061 has completed with three waves up to 1.3124. Hence, we’d expect strong resistance below 1.2814 support turned resistance to limit upside and bring another fall. On the downside, below 1.2658 minor support will turn bias back to the downside for 1.2526. However, firm break of 1.2814 will invalidate our view and bring stronger rally to retest 1.3124 instead.