USD/CAD rebounds from 1.2450 back towards 1.2500 despite hotter than expected inflation and higher oil prices
|- USD/CAD has rebounded after briefly dipping below 1.2450 to near 1.2500 despite hotter than expected inflation and higher oil prices.
- Technical support and fading momentum after good recent performance likely explain CAD’s struggles to keep pace with AUD and NZD.
Despite an upside inflation surprise that will likely trigger further speculation about a surprise BoC rate hike next week and further crude oil price upside on Wednesday, USD/CAD was not able to sustainably break below 1.2450. Indeed, the Canadian dollar lags its antipodean counterparts in terms of on-the-day performance and is currently up just 0.1% on the day against the buck versus gains of over 0.5% for the kiwi and Aussie.
The loonie difficulties to keep pace with its non-US dollar peers seem to be driven by technical buying in USD/CAD after the pair bounced at last week’s 1.2450 low, combined with a reluctance to break convincingly below the 200DMA, which resides at bang on 1.2500. At present, the pair trades just under 1.2500.
Waning momentum/difficulties to keep the bearish drive in USD/CAD alive shouldn’t be to surprising given the fact that, on the month, CAD is amongst the best performing G10 currencies and has already come a long way. USD/CAD is already lower by about 1.2% on the month and is over 2.0% below this month’s highs above 1.2800.
Technical support aside, however, with crude oil prices substantially above last week’s levels (when USD/CAD last tested 1.2450) and following further strong domestic data, the case for a lower USD/CAD remains strong. Traders well may see rallies as an opportunity to sell and even if the buck does continue to broadly strengthen this week, are unlikely to express bullish USD views against the loonie so long as the threat of a surprise BoC hike is on the table.
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