USDCAD Continues to Point Lower as Canadian Inflation Data Comes in Hot

Canadian CPI, Inflation, Bank of Canada, USDCAD – Talking Points

• CANADIAN CPI YoY: ACTUAL 6.7% (FORECAST 6.1%, PREVIOUS 5.7%)
• CANADIAN CPI MoM: ACTUAL 1.4% (FORECAST 0.9%, PREVIOUS 1.0%)
• USDCAD initially spiked lower to 1.2510 before recovering

Canadian inflation data for March came in much hotter than expected, as advanced economies continue to struggle with extremely sticky price pressures. Annual CPI jumped to 6.7%, much higher than the expected print of 6.1%. Core inflation data also came in much hotter than expected, with Core CPI up to 5.5% in March, up from 4.8% in February. This makes the March inflation print the highest since January 1991, when CPI reached 6.9%.

The hot print will likely reaffirm the Bank of Canada’s (BoC) aggressive path towards policy normalization. The BoC raised rates by 50 basis points last week while also revealing an aggressive quantitative tightening scheme. In that policy statement, the BoC stated that they expect inflation to average roughly 6% for the first half of 2022. Today’s CPI print may push the market to price in a more aggressive Bank of Canada, with the next policy meeting scheduled for June 1.

USDCAD 1 Hour Chart

Chart created with TradingView

Following the report, USDCAD initially spiked lower to fresh session lows before retracing that move. The pair remains pointed lower, with Loonie strength reinforced by recent gains in oil. USDCAD has now entered a zone below 1.2540 that has offered support for much of April. Should this area hold yet again, the 1.2600 threshold may come into focus quickly. However a break lower may usher in a cascade down to the 1.2500 area, where price consolidated around the turn of the month.

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— Written by Brendan Fagan, Intern

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter