USD/CAD clings to gains post-Canadian CPI, remains below 1.3000 ahead of Powell
|- A combination of factors assisted USD/CAD to regain strong positive traction on Wednesday.
- A slump in oil prices undermined the loonie and extended support amid modest USD strength.
- Hotter-than-expected Canadian CPI failed to provide any impetus ahead of Powell’s testimony.
The USD/CAD pair maintained its bid tone through the early North American session and was last seen trading around the 1.2980 region, just a few pips below the daily high. Spot prices moved little and largely shrugged off stronger Canadian consumer inflation figures.
Statistics Canada reported that the headline CPI climbed 1.4% in May as against the 0.6% previous and a reading of 1.0% estimated. Adding to this, the yearly rate also surpassed expectations and accelerated to 7.7% in May, or the highest level in nearly 40 years. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, rose 0.8% MoM and to 6.1% on yearly basis.
The data reaffirmed bets for a 75 bps rate hike move at the upcoming BoC meeting on July 13, though did little to provide any meaningful impetus to the Canadian dollar. An intraday slump in crude oil prices, down nearly 5% for the day, continued undermining the commodity-linked loonie. Apart from this, modest US dollar strength further acted as a tailwind for the USD/CAD pair, at least for now.
The USD continued drawing support from growing acceptance that the Fed would hike interest rates at a faster pace to combat stubbornly high inflation. Hence, the market focus will remain glued to Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Investors will look for fresh clues about the Fed's policy tightening path, which will drive the USD in the near term.
Traders will further take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair. Meanwhile, the fundamental backdrop seems tilted in favour of bulls and supports prospects for additional gains. That said, it would be prudent to wait for sustained strength beyond the 1.3000 psychological mark before positioning for any further appreciating move.
Technical levels to watch
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