The Loonie fell to two-week lows on Wednesday, falling roughly 1.0% on the day just above 1.2600 to just under the 1.25 level, with bears now testing of this month’s annual lows near 1.2400. The pair was weighed primarily because of USD underperformance, with the Aussie and kiwi both also gaining more than 1.0% on the day versus the US Dollar.
One more push for USDCAD downside on Wednesday was the Canadian Consumer Price Inflation figures for March, which saw the YoY rate of headline price growth accelerate to 6.7% from 5.7% in February. Core measures all also saw larger than expected MoM and YoY jumps. The hot numbers helped drive expectations that the BoC will follow up last week’s 50 bps rate hike with more hikes of a similar margin at upcoming meetings.
Indeed, the BoC is expected to maintain its lead regarding monetary tightening over the Fed this year, making the USDCAD pair less susceptible than some of its other G10 counterparts to the US Dollar strength because of hawkish Fed expectations. Should global commodity prices remain elevated in the coming weeks and months because of the ongoing Russo-Ukraine war, this should strengthen the case for an eventual break below 1.24.
Canada is gaining from a rise in commodity and energy prices, which allows the central bank to pursue a more aggressive policy stabilization than countries that are net importers of these commodities. In this situation, the CAD is getting support from three sides: more money coming into the country, more business activity, and a potentially stricter monetary policy.
Looking forward, the Loonie investors will focus to comments by Fed Chair Jerome Powell on Thursday, who is likely to solidify expectations for 50 bps rate hikes in the upcoming Fed meetings, which could support the buck. Awareness then turns to the Canadian Retail Sales figures for March and US flash April PMI survey results on Friday.
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