- USD/CAD saw a sharp reversal on Wednesday, rallying as high as the 1.2740s only to then drop back below 1.2700.
- Strong US data was behind the initial rally, before strong Canadian data and crude oil gains helped the loonie recover.
USD/CAD saw a sharp reversal on Wednesday, at one point rallying as high as the 1.2740s in wake of stronger than expected US data, only to then reverse back below the 1.2700 level following higher than expected January Canadian Consumer Price Inflation data. The pair ended the day with modest gains of about 0.1% and is currently trading pretty much bang on the 1.2700 mark as Asia Pacific flow arrives.
Driving the day
A blowout January US Retail Sales report that saw the headline MoM growth rate jump to 5.3% (versus expectations for 1.1%), combined with much faster than expected growth in Producer Prices in January, boosted USD versus the majority of its G10 counterparts on Wednesday. However, Canadian Consumer Price Inflation, which was released at the same time as the US data (at 13:30GMT), was also much firmer than expected; headline CPI came in at 0.6% MoM and 1.0% YoY, above respective market forecasts for MoM and YoY price growth rates of 0.4% and 0.9%. The average of the Bank of Canada’s Core measures of inflation dropped to 1.5% from 1.57%, however.
The stronger than anticipated headline CPI numbers seem to have encouraged CAD bulls to sell USD/CAD’s rally as it extended briefly beyond the pair’s 21-day moving average at 1.2735. Buoyant crude oil prices also helped CAD recover losses against its US dollar counterpart; crude oil markets saw a brief sell-off at the time of the CME pit open (at 14:00GMT), but quickly recovered ground amid dip-buying. Concerns regarding disruption to US production amid the unexpected onset of Arctic conditions in the south of the country, which is said to have taken 4M barrels per day (of the US’ total 11M barrel per day output) temporarily offline and knocked out 80% of Permian basis production, are boosting crude oil prices.
Meanwhile, bullish Weekly Private API Inventory data, released at 21:30GMT on Wednesday, has added further steam behind the crude oil market rally. Crude oil futures trade is now halted until 23:00GMT, but WTI futures rallied to close Wednesday trade as session highs around $61.70. If crude oil price strength continues in the coming weeks (most expect it will), this will be expected to drive outperformance in petro-currencies such as the Canadian dollar.
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