- USD/CAD slumps after hitting a daily high near the 1.2900 mark.
- The consumer price index (CPI) for July in the US slows down to 0% month-on-month.
- Despite the US inflation data, ING analysts expect the Fed to hike 75 basis points in September.
The USD/CAD tumbled after a softer-than-expected US inflation report, used by investors as an excuse to switch to riskier assets, pending Fed policy makers that could pave the on the way to the September FOMC monetary policy meeting. Consequently, the mood improved, further fueled by tensions between China and Taiwan, as the former announced the end of its military exercises, although it will continue to patrol the Taiwan Strait.
USD/CAD is trading at 1.2762 after hitting a daily high of 1.2895, but better-than-expected US inflation data sent the dollar down nearly 1.50%, and the dollar index American went from 106,403 to 104,840.
USD/CAD sinks as US inflation eases.
Before the open on Wall Street, the Labor Department reported that US inflation in July rose 8.5% year-over-year, down from 9.1% in June and less than the 8.7% estimate. Excluding volatile items like food and gas, it rose 5.9%, less than forecasts, and in line with June’s reading.
According to analysts at ING, the report provides the “insight” that overall US inflation has peaked, with gasoline prices down a dollar a gallon from their peak in June. “We expect the year-on-year rate to fall to 8.3%.” They added that core inflation is likely to remain on its “upward trajectory” due to rising rental costs, service sector inflationary pressures and wages.
Analysts added that “we don’t see core inflation peaking until around September/October, with a core rate of around 6.5% y/y by then.” In addition, they commented that they expect the Fed to tighten 75 basis points.
The reasoning is that “…inflation remains off target, the economy added more than half a million jobs last month, and third-quarter GDP is set to rebound based on consumer movement data. If Add to all this a positive contribution from net trade and a less negative carryover from inventories, the case for a third straight 75 basis point hike in the Fed rate in September remains strong.”
Meanwhile, USD/CAD reacted lower and tumbled below 1.2800, extending its losses further, despite falling crude prices and a lack of Canadian economic data to be released.
What to watch out for
A missing Canadian economic docket would leave USD/CAD supported by US data. In the United States, the Producer Price Index (PPI9 for July) will be published, along with the initial applications for unemployment benefits.
USD/CAD Price Analysis: Technical Outlook
USD/CAD extended its losses beyond the 20, 50 and 100 day EMAs, targeting the 200 day EMA at 1.2739. The Relative Strength Index further accelerated its decline, crossing below the 50 midline and dipping below the 42 reading, with some margin, before reaching oversold conditions. However, a break below the 200 day EMA will expose the 1.2700 figure, followed by the June 10 daily low at 1.2680.
|Last Price Today||1.2764|
|Today’s Daily Change||-0.0125|
|Today’s Daily Change %||-0.97|
|Today’s Daily Opening||1.2889|
|20 Daily SMA||1.2895|
|50 Daily SMA||1.2873|
|100 Daily SMA||1.2791|
|200 Daily SMA||1.2741|
|Previous Daily High||1.29|
|Previous Daily Minimum||1.2844|
|Previous Maximum Weekly||1.2985|
|Previous Weekly Minimum||1.2768|
|Monthly Prior Maximum||1.3224|
|Previous Monthly Minimum||1.2789|
|Daily Fibonacci 38.2%||1.2879|
|Daily Fibonacci 61.8%||1.2865|
|Daily Pivot Point S1||1.2855|
|Daily Pivot Point S2||1.2821|
|Daily Pivot Point S3||1.2798|
|Daily Pivot Point R1||1.2912|
|Daily Pivot Point R2||1.2935|
|Daily Pivot Point R3||1.2969|
Source: Fx Street