The Canadian Dollar Updates Against the US Dollar
The Canadian Dollar (CAD) is trading slightly higher against the US Dollar (USD) this Wednesday, just before the release of the US Consumer Price Index (CPI) data expected at 12:30 GMT. During Asian trading hours, the USD/CAD pair has dipped a bit, hovering around the 1.4200 mark as the US Dollar continues to decline.
As it stands, the US Dollar Index (DXY), which measures the Greenback’s performance against six major currencies, is down 0.1%, sitting close to 102.11. This represents a pullback from its yearly peak of 102.61 recorded on Monday.
The upcoming US CPI report is anticipated to reveal a rise in headline inflation to 3.6% Year-on-Year (YoY), an increase from 3.4% in August. Moreover, the core CPI, which omits the often-volatile food and energy prices, is forecasted to reach 2.5% YoY, slightly above the previous figure of 2.4%. This inflation data could significantly influence the Federal Reserve’s (Fed) expectations regarding interest rates.
At present, the CME FedWatch tool indicates that traders are mostly assured the Fed will maintain the current interest rates during its upcoming meeting and is likely to implement a hike in December.
Analysts at Societe Generale marked Wednesday’s US CPI update as pivotal for near-term Fed expectations. They argue that if core inflation indeed reaches the consensus of 2.5%, it won’t majorly alter the policy outlook. This suggests that a lack of change in market expectations is probable: no rate hike this month, but a strong likelihood of one in December and potentially another in the first quarter of next year.
On another note, the rising oil prices, driven by ongoing tensions between Saudi Arabia and Iran-backed Houthis, are providing additional support for the Loonie. Given that Canada is a net exporter of oil, the appeal of the Canadian Dollar tends to increase in a high-oil-price environment. Recently, the WTI Oil price has edged up above $96.00, recovering from a six-week low of $86.32 recorded last week.
USD/CAD Technical Analysis
Analyzing the daily charts, the USD/CAD pair is trading at 1.4203. The pair shows a bullish short-term bias, remaining above the 20-period exponential moving average (EMA) at 1.4163, indicating ongoing support for recent upward momentum. Meanwhile, the Relative Strength Index (RSI) at 59.0 remains in positive territory, albeit not at overbought levels, suggesting that buyers are still in control while there’s room for further advances before conditions become overly stretched.
On the downside, immediate support can be found at the 20-day EMA at 1.4163, which protects the latest price gains and would need to be breached to signal a more significant corrective phase. While the current dataset doesn’t provide clear resistance levels, the existing structure implies that only a substantial drop below the EMA would undermine the bullish sentiment and expose the USD/CAD to potential consolidation or a pullback phase.
