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The Canadian dollar is making significant gains against the US dollar, with USD/CAD falling towards 1.01.

Consumer prices are on the rise in Canada: CPI rose by 0.2%, exceeding expectations for a 0.1%. The bigger surprise came from Core CPI.

It jumped by 0.5%, much more than 0.2% that was expected. Core CPI excludes the most volatile components and is expected to be less volatile.

This development lowers the chances of a rate cut in Canada in the near future, probably not in 2011. Mark Carney and his colleagues are likely to wait and see that inflation calms down before cutting the rates. If this will go on, rates could even be raised sometime in 2012.

The rise in inflation joins strong employment figures. Canada is doing quite well, enjoying a solid economy at home and a recovering economy in the US, which also showed some positive signs recently.

USD/CAD is now at 1.01, falling from around 1.0150 before the release. 1.0080 is a support line before the ultimate support line of USD/CAD parity. Minor resistance is at 1.0140.

For more on the loonie, see the Canadian dollar forecast.

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