Keeping Long on USDCAD as Fall in Canada Inflation Brings 50 BPS BOC Rate Cut
USDCAD continued to push higher again today, climbing to 1.3838 right after the release of the soft Canadian inflation report.
USDCAD continued to push higher again today, climbing to 1.3838 right after the release of the Canadian inflation report which showed another decline. The CPI report for September came at 1.6% against 1.8% expected, however the core CPI ticked higher to 1.6% from 1.5%, but both remain below the Bank of Canada 2% target, which is negative for the CAD.
The USD/CAD exchange rate has been gradually climbing since early October, crossing the 1.38 level. This week’s upward movement has been relatively steady, with minimal retracements. Following the strong September Canadian employment data, a brief decline was quickly bought up, and the pair has maintained support above the 20 SMA on the H1 chart, reflecting strong buying interest.
The Canadian dollar has now been on a ten-day decline ahead of today’s CPI release. A significant factor in the loonie’s recent weakness is found in the inflation report, which shows the annual rate dropping from 2.0% to 1.6%, below the 1.8% forecast. With ample room for rate cuts, the Bank of Canada is set to meet again on October 23.
USD/CAD Chart H1 – MAs Supporting During Pullbacks
Following the unexpected inflation drop to 1.6% year-over-year, market expectations for a 50 basis-point rate cut this month have risen sharply. The probability of a half-point rate cut by the BOC increased from 48% to 67% after the inflation report. The report’s cautionary notes may have prevented even further gains in these expectations. We decided to place a buy signal for USD/CAD after it briefly rose 20 pips to 1.3838 but has since slipped back to 1.38.
Canada CPI Inflation Report for September
- Headline CPI (YoY): 1.6% vs. 1.8% expected; prior 2.0%
- Headline CPI (MoM): -0.4% vs. -0.2% expected; prior +0.4%
Core CPI Metrics:
- Bank of Canada Core CPI (YoY): 1.6%, prior 1.5%
- Bank of Canada Core CPI (MoM): 0.0%, prior -0.1%
- Core CPI (MoM, Seasonally Adjusted): +0.1%, prior +0.1% (revised to +0.2%)
- Median Core CPI: 2.3%, unchanged from prior
- Trimmed Core CPI: 2.4%, prior 2.5%
- Common Core CPI: 2.1%, prior 2.0%
USD/CAD Live Chart
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