USD/CAD Battles 200 DMA Following US PPI Slowdown

• USD/CAD extended losses for the second day in a row as sellers look for a breakout of the 200 DMA.
• US July inflation reports show signs of peaking, with CPI at 9% y/y and PPI at 10% y/y, below their readings in the previous month.
• Traders’ attention shifts to the University of Michigan Consumer Sentiment and Inflation Expectations.

The USD/CAD declines towards the 200 day EMA on Thursday due to a boost in risk appetite fueled by additional US inflation data, which completes the puzzle along with consumer inflation, leaving the Fed, the decision to whether US inflation has already peaked or not. In addition, the labor market began to show signs of moderation. All of these factors weighed on the USD, which, according to the US Dollar Index, was down 0.24% at 104.960.

USD/CAD is trading 1.2738 below its opening price, having hit a daily high of 1.2792, but as North American traders reached their desks, the currency fell to its daily low of 1.2727, 13 pips per below the 200 day EMA.

USD/CAD falls on slowing US inflation, easing pressure from the Fed

Investor sentiment is positive, as reflected by EU and US equities trading in the green. A report from the US Department of Labor showed that wholesale prices cooled, with the PPI rising 9.8% year-on-year, lower than expected. Furthermore, the core PPI, which excludes volatile items, was in line with estimates at 7.6% yoy, down from 7.9% in June.

Turning to the labor market, US initial jobless claims for the week ending Aug. 6 rose by 262,000, less than the 263,000 forecast, but up for the second week in a row.

Taking the above into account, USD/CAD edged lower as US inflation on both sides of the spectrum eased. Traders therefore gravitated towards riskier assets in the forex space, specifically antipodes and commodity-linked currencies such as the Loonie.

That said, crude oil prices rose for the second day in a row, underpinning the CAD after hitting a weekly low of $87.25. At the time of writing, Western Texas Intermediate (WTI), the benchmark crude oil in the US, is trading at $94.48.

Therefore, USD/CAD traders should also be on the lookout for a potential breakout of the 200 DMA which, once decisively breached, exposes the 1.2700 level as the next challenge for sellers.

what to watch

On Friday, the US economic calendar will release Consumer Sentiment from the University of Michigan, along with inflation expectations.

Technical levels