The Canadian dollar brushes off the crisis in Cyprus and continues advancing. The strong CPI numbers pushed USD/CAD to a new one month low.
Will USD/CAD parity be challenged? The focus now shifts to the first GDP release for 2013.
The new forex dynamics certainly help the C$: usually, the loonie would suffer from a crisis in Europe and retreat against the almighty US dollar which is a “safe haven”. However, the crisis is mostly felt in the euro, which fell to a new 4 month low against the greenback.
Canada continues enjoying the excellent jobs report for February, but now it received a boost from a different direction: inflation. The Consumer Price Index (CPI) rose by 1.2%, double the early expectations of 0.6%. This is the largest jump in almost 5 years.
Also Core CPI, surprised with a rise of 0.8%, far more than 0.3% that was anticipated. While this could probably be a one-off, it certainly lifts the overall level of inflation, which is the primary target of the Bank of Canada.
USD/CAD fell sharply in the immediate aftermath and touched a new low of 1.0150, last seen on February 20th. This now serves as immediate support. More serious support is at 1.01, followed by the 1.0066.
The obvious line of USD/CAD parity follows. Can we see it soon? It depends a lot on the next major release in Canada: GDP for January 2013 which is due on Thursday at 12:30 GMT. Note that the US will release the final GDP for Q4 and weekly jobless claims at the same time.
For more on USD/CAD, see the Canadian dollar forecast.
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