Canada Inflation Ticks Up, USDCAD Rate Falls Below 1.40

Yesterday USDCAD fell to 1.40 as the USD retreated and crude Oil jumped $2 higher, while today the higher Canadian inflation gave the push below 1.40 for this pair, with the USD continuing to remain on the back foot.

Geopolitical tensions and shifting expectations for Federal Reserve rate cuts propelled USD/CAD above the 1.40 mark last week, reaching a high of 1.4105. However, this week has seen a sharp bearish reversal. Yesterday, the pair fell back to 1.40, driven by rising oil demand following escalating tensions in Ukraine. This development came after former U.S. President Biden signed an agreement to provide Ukraine with long-range missiles, increasing the geopolitical risk premium for oil and indirectly strengthening the Canadian dollar.

USD/CAD Chart H1 – Will the 50 SMA Hold?

Today, a higher-than-expected rise in Canadian CPI inflation added further downward pressure on the pair. Canada’s inflation data for October exceeded expectations across several key measures, reflecting stronger price pressures in the economy. Despite this, sellers are encountering firm support around the 1.3970-80 zone, where the 50 SMA (yellow) aligns on the H1 chart, creating a key technical hurdle for further declines.

Canada CPI inflation Report for October 2024

• Headline CPI (MoM): Increased by 0.4%, above the 0.3% forecast, and a sharp rebound from September’s -0.4% decline.
• Core CPI (MoM): Rose to 0.3%, significantly higher than the 0.1% recorded in the previous month, suggesting firmer underlying price trends.
• Headline CPI (YoY): Climbed to 2.0%, slightly surpassing the 1.9% estimate and accelerating from September’s 1.6%.
• CPI Median: Came in at 2.5%, higher than the 2.4% consensus and up from 2.3% last month.
• CPI Trim: Increased to 2.6%, also beating the 2.4% estimate and up from the previous month’s 2.4%.
• CPI Common: Rose to 2.2%, slightly higher than the 2.1% registered in September.
• BoC Core CPI (YoY): Advanced to 1.7%, compared to 1.6% in the prior month.
• BoC Core CPI (MoM): Posted a strong 0.4% increase, bouncing back from a flat reading of 0.0% in September.

The stronger-than-expected inflation figures highlight renewed price pressures across various categories, including core components tracked closely by the Bank of Canada. This data may influence expectations for monetary policy adjustments, as inflation remains above the bank’s 2% target on several measures. It also underscores a broad recovery from the weaker inflation readings observed in September. Markets are likely to scrutinize this data for clues about future rate decisions from the BoC.

The release of higher-than-expected inflation data prompted a negative market reaction, reducing the probability of a 50-basis-point rate cut by the Bank of Canada from 38% to 20% ahead of the announcement. Following this development, USD/CAD has declined to test the 50-hour moving average near the 1.3970 level. This area aligns closely with the 2022 high, located within the 1.3970–1.3980 zone, serving as a key technical region for traders to watch.

USD/CAD Live Chart