The US CPI is now critical to the USD/CAD trajectory.
The USD/CAD is flat at this point in what could be an eventful day for the currency blocs. Market participants will get busy with US inflation data during the New York session. USD/CAD trades between 1.2668 & 1.2678 at the time of writing. This is steady in anticipation of today's important US event.
The Bank of Canada reiterated Wednesday that interest rate increases are imminent. Tiff Macklem (the Bank of Canada's Governor) was very hawkish in his live speech to the Canadian chamber of Commerce. Tiff Macklem said that the global supply chain problems could have peaked, which he blames on higher inflation. He also suggested that Canadians should be prepared for a rising path in interest rates. The loonie rose 0.3% to just below 1.2670 against the US dollar, and then stabilized before moving higher for the remainder of New York's day.
The BoC rate hike is expected to be announced by the money markets on the 30th of next month. As long as the global oil price remains high, the loonie will continue to enjoy the high-value exports of one of Canada’s largest exports.
Analysts at TD Securities warn, however, that the energy supply premium is susceptible to a tactical retreat. "Considering the emergence signs of normalizing production from Libya, Nigeria and Venezuela, as well as other OPEC+ countries, operational risks that have sustainedably driven energy supply risk higher are now decreasing. Diplomats are suggesting that talks are nearing completion as signs are emerging that Iran is moving towards a deal.
The US CPI will be the key
Now, the US calendar is our focus. The US January CPI could indicate that the "price pressures" in January are likely to continue, with the CPI hovering at 40-year highs, Westpac analysts wrote on Thursday.
"US CPI data tonight will be important as it will settle the debate about whether the Fed will raise the rate of interest by a 25bp increase or a 50bp rise. However, it is not clear that the USD would benefit from the latter, according to analysts at ANZ Bank.
According to analysts at Brown Brothers Harriman, the outlook for the greenback is more positive. "If those readings come back hot, it could trigger the next leg higher U.S. yields, and likely push the 10-year past 2% for first time since August 2019." "Fed tightening would also pick-up and likely push short end of US curve higher which would support dollar," Brown Brothers Harriman warned.
Technical analysis USD/CAD
According to the Analysis from New York, USD/CAD price Analysis: Bulls are moving in at critical H1 Support. The price has corrected towards the target area.
The price is printing an extended M-formation on the hourly charts, which is short-term.
According to traders, it was clear that the bulls are inching in on profits being taken off the table prior to the North America session's close. This is because they will be eager to be square ahead of the crucial US Consumer Price Index event in Thursday morning New York trade. This suggests that bulls could target the 1.2680's (namely the 38.2% and 50% ratios respectively) to correct the M-formation's neckline.