Mon. May 20th, 2024

CANADIAN DOLLAR HITS FRESH FIVE-MONTH LOWS AFTER MIXED INFLATION DATA

CANADIAN DOLLAR USD/CAD REMAINS VULNERABLE AFTER STRONG US RETAIL SALESCANADIAN DOLLAR USD/CAD REMAINS VULNERABLE AFTER STRONG US RETAIL SALES

The Canadian Dollar (CAD) is going through a sharp depreciation against a stronger Greenback on Tuesday, and the mixed Canadian Consumer Prices Index (CPI) has failed to provide any significant support.

  • Canadian Dollar depreciates further after mixed Canadian inflation data.
  • Core CPI eases to 2% YoY in March, feeding hopes that BoC might start cutting rates in June.
  • Later Tuesday, Fed Chair Powell and BoC President Macklem will speak about Canadian economy in Washington.

The Canadian Dollar (CAD) is going through a sharp depreciation against a stronger Greenback on Tuesday, and the mixed Canadian Consumer Prices Index (CPI) has failed to provide any significant support. Consumer inflation accelerated in March although the Core Bank of Canada CPI rose at a slower pace than in the previous month.

These figures come in line with cooling inflationary trends last seen at the Bank of Canada’s most recent monetary policy meeting, which would allow them to start cutting rates in June. This explains the negative impact on the Canadian Dollar vis-à-vis the Greenback.

Later Tuesday, BoC Governor Tiff Macklem and Federal Reserve (Fed) Chair Jerome Powell are expected to take part in a panel discussion about the Canadian economy in Washington. Any comments about the monetary policy plans of their respective banks are likely to be analyzed with particular interest.

Daily digest market movers: USD/CAD rallies further on monetary policy divergence

  • Lower hopes of Fed easing in the coming months and then higher expectations that the BoC will trim rates in June are hammering the Canadian Dollar.
     
  • Canadian CPI accelerated at a 0.6% pace in March and 2.9% YoY, up from 0.3% and 2.8% in the previous month.
     
  • Core CPI, however, eased to a 2.0% yearly rate from 2.1% over the previous month.
     
  • US Construction activity data has disappointed, with Housing Starts and Building Permits declining beyond expectations in March.
     
  • US Industrial Production grew 0.4% in March, in line with market expectations and unchanged from the previous month. Capacity utilization increased to 78.4% from the downwardly revised 78.2% but below the 78.5% forecasted by experts.
     
  • Fed Vice Chair Jefferson has given a neutral speech hinting at rate cuts later this year but also warning that inflation data forces it to keep rates high for a longer time.
     

Canadian Dollar price this week

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this week. Canadian Dollar was the weakest against the Swiss Franc.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Technical analysis: USD/CAD reaches overbought levels at 1.3845

The US Dollar seems unstoppable. The pair has rallied non-stop during the last six trading days, appreciating nearly 2%. RSI levels are at overbought territory, although with no sign of a reversal in sight.

Bulls have hit resistance at the 1.3845 area, and these conditions suggest the possibility of a bearish correction. In that case, 1.3785 and 1.3730 are likely to provide support. On the upside, above 1.3845, the next target is the November 2023 high at 1.3900.

CANADA CONSUMER PRICE INDEX (MOM) BELOW FORECASTS (0.7%) IN MARCH: ACTUAL (0.6%)

CANADA CONSUMER PRICE INDEX – CORE (MOM) ROSE FROM PREVIOUS -0.1% TO 0.2% IN MARCH

CANADA BOC CONSUMER PRICE INDEX CORE (YOY): 2% (MARCH) VS PREVIOUS 2.1%

CANADA CONSUMER PRICE INDEX (YOY) INCREASED TO 2.9% IN MARCH FROM PREVIOUS 2.8%

CANADA HOUSING STARTS S.A (YOY) BELOW EXPECTATIONS (244K) IN MARCH: ACTUAL (242.2K)

CANADA HEADLINE CPI TO BOUNCE TO 3% IN MARCH – TD SECURITIES

Analysts at TD Securities expect the Consumer Price Index in Canada to rise 3% in March.

“We look for headline CPI to bounce 0.2pp higher to 3.0% y/y in March as prices rise by 0.7% m/m (market: 0.7% m/m, 2.9% y/y), underpinned by another large increase for the energy component alongside a partial rebound in food prices and core goods.”

“A return to more broad-based price pressures should also translate to a larger increase for the Bank of Canada’s (BoC) preferred measures of core inflation, with CPI-trim/median forecast to rise by 0.3% m/m, which would still translate to a modest deceleration on a 3m annualized basis.

However, the expected move higher for headline CPI and a larger m/m increase for core measures stand in contrast to the BoC’s desire for more evidence that recent progress will be sustained and even though the Bank will have the April CPI report in hand for its next policy decision, we do not expect it to have enough evidence of sustained deceleration until July.”

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