The Canadian Dollar hits 14-month lows: Why higher inflation is unlikely to support the Loonie for now

The Canadian Dollar (CAD) is facing renewed pressure as USD/CAD extends its rally to 14-month highs, with Societe Generale noting a decisive shift in momentum and RBC highlighting that domestic inflation remains skewed by volatile energy costs.

Societe Generale sees no pullback signals after USD/CAD breaks long-term downtrend

Societe Generale analysts note that the USD/CAD pair has accelerated after crossing a descending trend line in place since last year, marking a shift in momentum.

With the November peak at 1.4130-1.4150 now serving as support and upside objectives stretching toward 1.4285-1.4335, the Canadian Dollar could face further downside against the Greenback.

The pair is now attempting to break out of a broad multi-month range. The move is somewhat stretched; however, there are no clear signals of a meaningful pullback yet.

RBC says energy prices mask subdued underlying inflation pressures

The Royal Bank of Canada (RBC) notes that Canadian headline inflation accelerated to 3.2% year-over-year in May, though the increase was heavily concentrated in energy, airfares, and food costs.

The subdued core readings suggest the Bank of Canada may not feel pressure to respond aggressively to headline inflation, leaving the Canadian Dollar without a clear interest-rate tailwind even as the figures climb.

The May report suggests headline inflation remains heavily influenced by energy prices while underlying inflation trends continue to move broadly in line with the Bank of Canada's inflation target.

Canadian Dollar outlook weakens

Societe Generale's technical outlook and RBC's inflation analysis both suggest little tailwind for the Canadian Dollar. The former sees the USD/CAD uptrend extending toward fresh highs, and the latter indicates that inflation pressures remain contained once volatile categories are stripped out.

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)