USD/CAD analysis and talking points
- CAD awaits inflation and President Powell’s testimony
- USD/CAD is testing the big pivot at 1.300
The Canadian dollar has struggled in recent sessions amid a pullback across the commodity complex, along with continued demand for the dollar. However, breakouts have been difficult to achieve as spreads continue to narrow indicating that the USD/CAD is likely to remain a trading range. Elsewhere, what is also noteworthy is the US dollar’s failure to extend higher on the back of a 75bp rate hike. Perhaps this indicates that the dollar may have peaked in the short term, which is what I was thinking of yesterday’s note. (It is the peak of the dollar)
Looking ahead, today we will see the release of the latest inflation report, which will see the introduction of used cars, with a higher weight allotment to gasoline. A reminder that at the last meeting of the Bank of Canada the bank stated that it was prepared to act more aggressively to contain inflation, indicating its willingness to raise 75 basis points. As it stands, money markets are pricing in 68 basis points to tighten at the July meeting, which will rise on a higher-than-expected inflation number and thus lift the Canadian dollar.
Bank of Canada rate forecast
Grand Pivot at 1.3000 USD/CAD
The USD/CAD pair is once again testing the significant 1.3000 resistance, which proved to be a stumbling block for the pair after two failed attempts to maintain a foothold above, and to form a top at 1.3079. While weak oil prices will see limited pullbacks from 1.3000, the dollar will be the main driver for this pair, so all eyes will be on President Powell’s testimony.
USD/CAD chart: weekly Time frame
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