USD/CAD rallied higher yesterday, but after some consolidation early today, we saw a pullback in the last few hours as the USD retreated lower. But the last hourly candlestick closed as a doji which is a bullish reversing signal. A while ago we saw inflation cool off in Canada during July, as it did in the US, which means that the Bank of Canada will take it easier on rate hikes.

USD/CAD H1 Chart – Is the Retrace Over?

The chart pattern points to a bullish reversal in the H1 timeframe

Canada July CPI Inflation Report

• Canada July CPI YoY 7.6% vs 7.6% expected
• June CPI YoY was 8.1%
• CPI MoM +0.1% vs +0.1% expected
• Prior CPI MoM reading was +0.6% (revised to +0.5%)
• Core CPI YoY excluding gasoline +6.6% vs +6.5% prior
• Gasoline prices -9.2% vs +6.2% in June
• Average hourly wages YoY +5.1% vs +5.2% prior
• Energy prices YoY +28.0% vs +38.8% prior
• Food prices YoY +7.6%
• Shelter costs +7.0% vs +7.1% prior
• Services +5.7% vs +5.2% prior

Core measures:

• BOC core 6.1% vs 6.2% prior
• Median 5.0% vs 4.9% prior
• Trim 5.4% vs 5.5% prior
• Common 5.5% vs 4.7% expected (4.6% prior, revised to 5.3%)

Canadian housing starts were also released and were at 275.3k annualized compared to 262.1k prior. Despite cooling off, inflation still remains high in Canada and the market is expecting another 75 bps from the Bank of Canada.

Canadian gasoline prices fell 9.2% in June while they fell 7.6% in the US. That trend has continued so far in August but what might get the Bank of Canada’s attention is the broadening in core inflation in services and via CPI common.

Bank of Canada’s Macklem in an op-ed said:

• Inflation in Canada has come down a little bit, but remains far too high
• Inflation may have peaked
• Inflation will likely remain at 2 high for some time
• The best way to protect people from higher inflation is to eliminate it, we are determined to do that
• Our job won’t be done until inflation get back to the 2% target

Comments are Fed-ish from the Bank of Canada head (and rightfully so). Having said that, the employment statistics from Canada has shown to consecutive monthly declines which runs in contrast to the US employment report which saw above trend job growth including 528K in the last report.