Bears Take a Break on USD/CAD
USD/CAD is stabilizing in forex around multi-day lows below 1.3400 amid a hit from US inflation to the US dollar and firmer oil prices.
- USD/CAD remains lower after falling to a seven-week low.
- The downbeat US CPI fueled discussions of the Fed’s policy pivot and weighed on the US Dollar.
- WTI Crude Oil encouraged the weaker USD on hopes of greater energy demand.
- Risk catalysts, China’s Trade Balance and Michigan’s US CSI are important to watch for further momentum.
The bears of the pair USD/CAD pause at near two-month lows around 1.3365 after biggest daily drop in a week as traders look for more clues to extend inflation-driven South American trend . That said, the USD/CAD pair fell sharply after the US Consumer Price Index (CPI) fueled expectations of a lower Fed rate hike in December and drowned the US Dollar, which which allowed WTI Crude Oil to print a four-day uptrend and hit its weekly high.
On Thursday, the US consumer price index (CPI) matched forecasts of 6.5% year-on-year for December, down from 7.1% previously.
More importantly, the CPI excluding food and energy also proved the market consensus of 5.7% YoY to be correct, down from 6.0% in the previous reading.
It should be noted that the CPI marked the first negative figure since June 2020 while marking a figure of -0.1% for the indicated month, against 0.0% expected and 0.1% previously.
Following inflation readings, Fed key rate futures implied a nearly 100% chance of a Fed rate hike of 0.25% in February, while odds favoring a rate hikes of 50 basis points in said month fell to 8.0%.
The same should have allowed Philadelphia Federal Reserve Chairman Patrick Harker to mention that it was time for future Fed rate hikes to move to 25 basis point increments.
Additionally, St. Louis Federal Reserve Chief James Bullard also said the most likely scenario is that inflation stays above 2%, so the key rate will need to be higher for longer.
Recently, Richmond Federal Reserve Chairman Thomas Barkin mentioned that it “makes sense” to steer more deliberately as the Fed strives to lower inflation.
As a result, the US dollar index (DXY) fell the most in a week to refresh the seven-week low.
On the other hand, the WTI crude oil renewed its weekly high around $79.35 before ending near $78.50 on Thursday. Despite this, the black gold managed to print a four-day winning streak as widespread weakness in the US Dollar joined recent optimism surrounding China that suggests higher energy demand from China. part of the largest user of raw materials in the world. It should be noted that Canada’s reliance on crude oil exports as a primary source of revenue makes the Canadian dollar (CAD) sensitive to oil prices.
Against this backdrop, Wall Street managed to close in the green as 10-year and 2-year US Treasury bond yields refreshed monthly lows.
Looking ahead, Chinese trade numbers for December may offer immediate forex guidance to the USD/CAD pair ahead of the preliminary US Michigan Consumer Sentiment Index (CSI) readings for January. News surrounding China and Fed moves will also be important.
Analyse technique USD/CAD
Sustained trade below the 100-day moving average EMA, around 1.3430 at the time of writing, joins bearish signals from the MACD and the bearish RSI line to keep the price of the USD/CAD pair bearish. hope to visit November 2022 low near 1.3230.
By Anil Panchal, FXStreet
Worked with Edelweiss Financial Advisors Ltd from 2007 to 2013 as a research analyst for the commodities sector. Subsequently, Anil joined Admiral Markets from April 2013 to January 2019 where he worked as a Forex analyst. Job roles at both locations were to follow the macro economy and conduct fundamental and technical analysis of commodities and the Forex market respectively. At FXStreet, he mainly writes Asset/Tech news articles on various currency pairs, commodity pairs and even some equity markets. It also helps to provide macro/event data overviews and banking reports whenever needed.
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