USD/CAD retreats toward 1.2500, holds onto daily gains
- US dollar rises after US inflation numbers, DXY approaches July top.
- USD/CAD keeps having difficulties holding well above 1.2500.
- Attention turns to Powell’s testimony and to the Bank of Canada July meeting.
The USD/CAD peaked after the beginning of the American session at 1.2539, boosted by a stronger dollar on the back of higher-than-expected US inflation data. During the American session, the pair pulled back toward 1.2500, trimming gains. The intraday bias continues to point to the upside.
Prices up, dollar up
The Consumer Price Index (CPI) rose 0.9% in June and to an annual rate of 5.4%, the highest level since 2008. The greenback jumped across the board following the numbers that could increase expectation about a tapering of the Fed’s QE program.
US yields initially soared but then pulled back to the level prior to the report. The retreat in yields alleviated the bullish momentum of the dollar.
Awaiting the BoC
The loonie is showing some weakness ahead of the Bank of Canada meeting. It is falling versus currencies like NZD and AUD, even as crude oil prices rise. The WTI barrel gains 1.60%, as it trades above $75.30
On Wednesday, the Bank of Canada will have its monetary policy meeting. The key rate is expected to remain unchanged. Attention is on the level of asset purchases and the guidance of the statement. “We expect the Bank to slow the minimum pace of asset purchases to CAD 2bn a week, before another CAD 1bn reduction at the October meeting to CAD 1bn as we head into 2022,” says analysts at Rabobank.
Regarding the technical outlook, at Rabobank, they forecast USD/CAD at 1.25 in a one-month period and at 1.26 in three. “USD/CAD recently broke out of the 14-month bear trend which coincided with the completion of a bullish cup and handle formation and we expect the pair to test 1.2670 in the coming weeks.”
Technical levels
Author
Matías Salord
FXStreet
Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.
