USD/CAD falls below 1.2850 and eyes 1.2800 on high crude-oil prices, Canadian inflation

• The Loonie advances benefited from a soft US dollar and high oil prices.
• Statistics Canada reported that consumer prices hit a 31-year high at 6.8%y/y.
• USD/CAD Price Forecast: To reach 1.2700 once USD/CAD bears reclaim 1.2800.

The USD/CAD slides for the third day of the week and is trading back below the 1.2900 figure after two consecutive days of a busy Canadian calendar, which witnessed the release of inflationary figures, which showed that Consumer Prices rose. However, the market reacted the opposite way, sending the USD/CAD rallying above 1.2900, though Thursday’s is a different story. At 1.2801, the Loonie regained its strength, though the greenback is trading softer in the North American session.

Canadian inflation at 31-year highs

On Wednesday, Canadian data showed that inflation struck a 31-year high at a pace of 6.8% y/y, higher than the 6.7% foreseen. Analysts at TD Securities wrote in a note that the report might keep the Bank of Canada under pressure to bring policy to neutral. They added that although “The Bank has already acknowledged that additional 50bp hikes are likely, today’s report is unlikely to tip the scales towards a 75bp hike.”

“We continue to look for the Bank to hike by 50bps in June and July to bring the overnight rate to 2.00%, before switching to 25bp hikes from Sept-Jan,” TD Securities analysts noted.

Meanwhile, on Thursday, Statistics Canada reported that prices paid by producers, also known as PPI, came in line with expectations, but Raw Materials skyrocketed to 38.4% y/y, higher than the 31% estimations.

Along with a weaker US Dollar despite a risk-aversion environment, those factors are a headwind for the USD/CAD. Also, the rising US crude oil, with WTI’s gaining almost 1.50%, up at $110.79 per barrel, boosted the prospects of the Canadian dollar.

The US economic docket featured Initial Jobless Claims for the week ending on May 14, which grew by 218K,  more than the 200K estimated. At the same time, the Philadelphia Fed Manufacturing Index increased to 2.6, much lower than the 17.6 estimated, following the New York Fed’s Empire State index drop,  which shrank to 11.6, painting a dismal US ISM figure for June.

During the day, the Kansas City Fed President Esther George said that the “rough week in the equity markets” does not alter her support of 50-bps hikes to cool inflation. She added, “right now, inflation is too high, and we will need to make a series of rate adjustments to bring that down.”

On Wednesday, Philadelphia’s Fed President Patrick Harker stated that the Fed “doesn’t want to overdo it” and commented that the US might have a few quarters of negative growth, but that is not what he is forecasting.

USD/CAD Price Forecast: Technical outlook

The USD/CAD on Thursday tumbled below the 20-day moving average (DMA) at 1.2861, signaling that bears remain in control in the near term. Worth noting is the slope of the 50, 100, and 200-DMA, trapped in the 1.2693-54 area, almost horizontal, emphasizing the sideways price action of the major. Digging a little deep, the RSI is about to cross towards negative territory, meandering around 50, but with a downslope, opening the door for further losses.

That said, the USD/CAD first support would be 1.2800. Once cleared, the next demand zone would be the April 29 daily low at 1.2718, followed by the confluence of the 50 and 100-DMA at 1.26693 and 1.2688, respectively.