Softer Canada Inflation Helps USD/CAD

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USD/CAD/Analysis

Today's data from Canada showed progress on disinflation, after the previous month's uptick. Headline CPI moderated to 2.7% y/y and core to 1.6% y/y, marking the slowest pace in two years. The report must be well received by policymakers, who have refrained from hiking over the past six meetings, but have been reluctant to pull the trigger on rate cuts. Officials had appeared less concerned around price pressures after the last decision and a pivot may not be far. Governor Macklem had noted that "we are seeing what we need to see, but we need to see it for longer" and asked about a June pivot, he said that it is "within the realm of possibilities". [1]

Price pressures in the US on the other hand, have been persistent this year, causing the Fed to shift to cautious approach towards removing monetary restraint. Last week's CPI data strengthened market bets for two cuts this year, starting in September. However, the Fed may still lag its Canadian counterpart in the path to lower rates.

Today's CPI print strengthens the case for a BoC pivot and the monetary policy differential is likely to be tailwind for USD/CAD, which reacts higher, trying to retake the EMA200 (black line). Suceesfull effort along with Ihe defence of the crucial 38.2% Fibonacci, would crate scope for a resurgence that would challenge the 2024 highs (1.3846). On the other hand, the Fed is still expected to cut rates and the monetary policy landscape is uncertain. The aforementioned Fibonacci level could still give way and expose USD/CAD to 1.3419.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 17 Jun 2024 https://www.youtube.com/watch

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