- Canadian Dollar depreciates further after mixed Canadian inflation data.
- Core CPI eases to 2% YoY in March, feeding hopes that BoC might start cutting rates in June.
- Later Tuesday, Fed Chair Powell and BoC President Macklem will speak about Canadian economy in Washington.
The Canadian Dollar (CAD) is going through a sharp depreciation against a stronger Greenback on Tuesday, and the mixed Canadian Consumer Prices Index (CPI) has failed to provide any significant support. Consumer inflation accelerated in March although the Core Bank of Canada CPI rose at a slower pace than in the previous month.
These figures come in line with cooling inflationary trends last seen at the Bank of Canada’s most recent monetary policy meeting, which would allow them to start cutting rates in June. This explains the negative impact on the Canadian Dollar vis-à-vis the Greenback.
Later Tuesday, BoC Governor Tiff Macklem and Federal Reserve (Fed) Chair Jerome Powell are expected to take part in a panel discussion about the Canadian economy in Washington. Any comments about the monetary policy plans of their respective banks are likely to be analyzed with particular interest.
Daily digest market movers: USD/CAD rallies further on monetary policy divergence
- Lower hopes of Fed easing in the coming months and then higher expectations that the BoC will trim rates in June are hammering the Canadian Dollar.
- Canadian CPI accelerated at a 0.6% pace in March and 2.9% YoY, up from 0.3% and 2.8% in the previous month.
- Core CPI, however, eased to a 2.0% yearly rate from 2.1% over the previous month.
- US Construction activity data has disappointed, with Housing Starts and Building Permits declining beyond expectations in March.
- US Industrial Production grew 0.4% in March, in line with market expectations and unchanged from the previous month. Capacity utilization increased to 78.4% from the downwardly revised 78.2% but below the 78.5% forecasted by experts.
- Fed Vice Chair Jefferson has given a neutral speech hinting at rate cuts later this year but also warning that inflation data forces it to keep rates high for a longer time.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.24% | 0.24% | 0.47% | 1.04% | 0.88% | 1.00% | -0.13% | |
| EUR | -0.23% | 0.00% | 0.24% | 0.81% | 0.65% | 0.78% | -0.37% | |
| GBP | -0.24% | 0.00% | 0.24% | 0.80% | 0.64% | 0.77% | -0.38% | |
| CAD | -0.47% | -0.24% | -0.25% | 0.57% | 0.40% | 0.53% | -0.62% | |
| AUD | -1.05% | -0.81% | -0.82% | -0.57% | -0.16% | -0.04% | -1.19% | |
| JPY | -0.87% | -0.64% | -0.62% | -0.40% | 0.16% | 0.15% | -1.02% | |
| NZD | -1.02% | -0.78% | -0.79% | -0.53% | 0.04% | -0.13% | -1.14% | |
| CHF | 0.14% | 0.36% | 0.37% | 0.60% | 1.16% | 1.01% | 1.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Technical analysis: USD/CAD reaches overbought levels at 1.3845
The US Dollar seems unstoppable. The pair has rallied non-stop during the last six trading days, appreciating nearly 2%. RSI levels are at overbought territory, although with no sign of a reversal in sight.
Bulls have hit resistance at the 1.3845 area, and these conditions suggest the possibility of a bearish correction. In that case, 1.3785 and 1.3730 are likely to provide support. On the upside, above 1.3845, the next target is the November 2023 high at 1.3900.
USD/CAD 4-Hour Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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