- USD/CAD has been swinging in the wake of the US CPI but has finally slipped back below 1.2950 as crude oil prices rise.
- However, the dour tone in US equity trading hampers the prospect of a broader CAD rally.
- USD/CAD reached its highest level since November 2021 on Tuesday at 1.3050.
The USD/CAD saw a momentary jump in recent trade on the back of higher-than-expected US consumer price inflation data and came close to testing Tuesday’s multi-month highs at 1.3050. However, almost as quickly as the pair rose, it reversed lower and fell back to 1.2950, where it trades, with daily losses of around 0.5%.
Global crude oil prices have regained their footing after falling earlier in the week and this is helping the Canadian dollar recover from its weakest levels against the US dollar since November 2021. But the dovish tone in US equity markets (and global) presents a barrier for USD/CAD trading lower or testing support in the 1.2900 area.
US equities, to which the risk-sensitive Canadian dollar has been closely correlated (as well as other risk currencies) in recent weeks, come under pressure again on Wednesday as investors Concerned about the meaning of the latest US inflation figures in recent weeks, they are under pressure again on Wednesday as investors are concerned about the meaning of the latest US inflation figures for the outlook. of Fed policy.
US CPI rose 8.3% in April, easily beating the 8.1% expected, while core CPI rose 6.2% and also beat the 6.0% consensus. Higher inflation means investors are concerned about the Federal Reserve tightening aggressively this year and next to lock in rising prices, despite a weakened global growth outlook.
Although the BoC is arguably even more aggressive than the Fed, this has not been enough to shield the risk-sensitive Canadian dollar from the impact of the drop in risk appetite in recent weeks. The BoC will be in focus later this week when its deputy governor Toni Gravelle speaks on the subject of commodities, growth and inflation on Thursday. Traders will listen closely as it could offer more clues about the interest rate outlook.
Technical levels
Source: Fx Street
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