USD/CAD hits a new two-week high after US CPI.

• The dollar strengthened across the board and pushed USD/CAD to a fresh two-week high.
• A stronger US CPI reaffirmed the Federal Reserve’s expectations and provided a strong boost to the dollar.
• The Canadian CPI, better than expected, did not benefit the loonie or hinder its progress.

The pair USD/CAD added intraday gains and soared to a fresh two-week high around the 1.2770 area, reacting to stronger US consumer inflation figures.

The US headline CPI rose 1.0% mom in May, vs. 0.7% expected, with the annual rate jumping to a new 40-year high of 8.6%. Additionally, core inflation, which excludes food and energy prices, rose 0.6% mom and 6.0% mom, beating consensus estimates of a 0.5% and 5.9% reading, respectively.

The data reaffirmed market bets that the Federal Reserve would have to tighten policy at a faster pace to curb rising inflation. In fact, markets are pricing in a cumulative hike of 215 basis points in 2022, with hikes of 50 basis points each at the June, July and September meetings. This, in turn, boosted the US dollar and the USD/CAD pair.

On the other hand, the Canadian dollar failed to gain any significant traction following the release of better-than-expected national employment data. Statistics Canada reported that the number of employed people increased by 39,800 in May (30,000 expected) and the unemployment rate fell to 5.1%.

With the latest rally, the USD/CAD pair has risen almost 250 pips from its lowest level since April 21, around the 1.2520-1.2515 area touched on Wednesday, and looks poised to appreciate further. Therefore, a further move towards 1.2800, in the way of the 1.2825-1.2830 supply zone, now looks like a distinct possibility.

Technical levels