USD/CAD Forecast: Canada’s Inflation Eases Less than Expected

• Canada’s annual inflation rate decreased to 6.8% in November.
• There is a 45% chance of a 25 basis point rate increase from the BoC in January.
• Consumer confidence in the United States increased to an eight-month high in December.

Today’s USD/CAD forecast is bearish. According to data released on Wednesday, Canada’s annual inflation rate decreased to 6.8% in November as fuel prices increased more slowly. This opens the possibility of another interest rate increase in January.

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Analysts had predicted that inflation would drop from 6.9% in October to 6.7% this month. Statistics Canada reported that consumer prices increased 0.1% from October, above analysts’ estimates of a flat increase. Prices increased 5.4%, excluding food and energy, compared to a 5.3% increase in October.

The bank has stated that it will become more data-dependent in establishing the policy rate. In January, there is a 45% chance, up from 42% before the data, of a 25 basis point rate increase, according to the money markets.

Consumer confidence in the United States increased to an eight-month high in December as inflation declined and the labor market remained robust. However, ongoing recession fears prevented many households from making large-ticket purchases for the upcoming six months.

Other data released on Wednesday revealed that November was the longest stretch since 1999 in which sales of previously owned homes declined for a tenth consecutive month.

The Federal Reserve, waging war on inflation by attempting to reduce demand for everything from housing to labor, is putting the economy on recession alert as it is currently in the midst of its quickest cycle of interest rate increases since the 1980s.

USD/CAD key events today

Investors will pay attention to GDP data from the US that will show the state of the economy amid rising interest rates. It will also show whether the economy will likely get into a recession. The US will also release the initial jobless claims report.

USD/CAD technical forecast: Next target is at the 1.3537 support

USD/CAD has broken below the 1.3600 support level after consolidating above it for some time. The price is currently trading below the 30-SMA, with the RSI under 50 supporting bearish momentum.

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There is a high chance that the price will fall to the next support level at 1.3537. At this point, the price will either bounce higher or break below and continue the downtrend. The bearish trend will continue if the price stays below the 30-SMA.

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