USD/CAD broke above the ascending range last week after dovish comments by the BOC and today’s CPI inflation might send this pair even higher, especially if it comes on the soft side. In that case, 1.39 and 1.40 won’t be too far to reach this month.

USD/CAD Chart Daily – The Upside Momentum Has Picked Up Pace

The recent policy statement from the Bank of Canada (BoC) has taken on a dovish tone that weighed on the CAD, as indicated by the removal of a line expressing concern about inflationary risks. The statement acknowledged that while inflation remains elevated, there has been a slowdown in both CPI and core inflation in recent months which has been one of the reasons for the jump above the channel. Despite this, the BoC’s Monetary Policy Report (MPR) revised Q1 CPI projections slightly lower, but still towards the upper end of its target range at 2.8%, with expectations for Q2 CPI at 2.9%.

Bank of Canada Turning Dovish

In last week’s meeting, Governor Macklem emphasized the BoC’s stance of monitoring indicators to determine the appropriate duration of current interest rate levels, particularly in light of the recent moderation in underlying inflation. Macklem noted that while shelter cost inflation remains high and continues to be a significant contributor to overall inflation, other services, such as restaurant meals, also maintain elevated prices.

Regarding the possibility of a rate cut in June, Macklem acknowledged its feasibility but highlighted that the decline in momentum is a recent development. If today’s numbers come soft though, a Jne cut will be a done deal and USD/CAD will probably reach 1.39 this week. He also mentioned that the BoC deliberated on the timing of interest rate cuts, with a consensus to maintain rates at the current meeting, although there was some divergence among Governing Council members regarding the timing of desired outcomes. However, if the CPI comes strong, then we might see a return to the top of the channel where we will be inclined to buy this pair.

USD/CAD Live Chart