USD/CAD spikes to 1.3500 mark on softer Canadian consumer inflation figures

The USD/CAD pair catches fresh bids during the early North American session on Tuesday and spikes to the top end of its daily range in reaction to rather unimpressive Canadian macro data. The pair is currently trading just below the 1.3500 psychological mark, up around 0.30% for the day, and seems poised to appreciate further.

Against the backdrop of weaker Crude Oil prices, softer Canadian consumer inflation figures weigh on the commodity-linked Loonie and provide a modest lift to the USD/CAD pair.

Earlier in the day, Statistics Canada reported that the headline CPI rose by 0.5% in January, slightly lower than the 0.6% expected. Adding to this, the yearly rate decelerated more than anticipated, to 5.9% from the 6.3% previous.

Moreover, the Bank of Canada's (BoC) Core CPI, which excludes volatile food and energy prices, also missed estimates and came in at a 5% YoY rate, down from the 5.4% previous.

The slower inflation data fuels speculations that the BoC will pause the policy-tightening cycle and overshadows the better-than-expected Canadian monthly Retail Sales figures, which recorded a strong growth of 0.5% in December.

The US Dollar (USD), on the other hand, continues to draw support from rising bets for at least a 25 bps lift-off at the next two FOMC policy meetings in March and May.

The prevalent risk-off mood - amid looming recession risks and geopolitical tensions - benefits the safe-haven Greenback and supports prospects for a further appreciating move for the USD/CAD pair.

From a technical standpoint, the USD/CAD pair looks to be completing a three wave zig-zag pattern on the 4hr charts, which hypothetically began at the February 16 lows.

Such a pattern might be composed of wave A, rising up and finishing on the 17th, the corrective wave B completing on the 20th and the second bullish wave, C, rising now.

Assuming a minimum target of a Fibonacci 61.8% projection of wave A, C should reach 1.3055.  

Next on tap is the US economic docket, featuring the release of the flash PMI prints for February and Existing Home Sales data.

These data points, along with the broader risk sentiment, will influence the USD and provide some impetus to the USD/CAD pair. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities ahead of the FOMC minutes on Wednesday.

Technical levels to watch