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  • Canada’s inflation dropped to 6.9%, higher than the expected 6.8%.
  • Core inflation in Canada went up from 5.3% in August to 5.4% in September.
  • Markets have increased bets on a 75bps BoC rate hike next week after the inflation data was released.

Today’s USD/CAD outlook is bearish. According to data released on Wednesday, Canada’s annual inflation rate crept lower but still beat expectations in September while underlying price pressures remained virtually unchanged. This increased calls for the central bank to increase interest rates again next week.

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Inflation was 6.9%, lower than the 7.0% of August but higher than the 6.8% expected. Prices increased by 5.4% from 5.3% in August when food and energy were excluded.

“Even though the headline numbers have moved lower – it does look like the inflationary shock is spreading a bit,” said Andrew Kelvin, chief Canada strategist at TD Securities.

On October 26, the BoC will make its next decision and provide quarterly forecasts. After the release of the inflation figures, money market bets shifted to 75 basis points, with the policy rate now anticipated to peak between 4.25% and 4.50% in the first quarter of 2023. Most analysts surveyed in advance by Reuters predicted a 50 bps increase.

Since March, the bank has increased rates by 300 bps and has hinted that there would be additional hikes. Near-term consumer inflation expectations are at record highs which might force the BoC to keep hiking rates aggressively.

USD/CAD key events today

Investors expect US figures on existing home sales and initial jobless claims. The initial unemployment claims report will garner more attention because it provides information on the labor market.

USD/CAD technical outlook: Bulls barred by 30-SMA resistance

USD/CAD outlook

The 4-hour chart shows the price trading at the 30-SMA and the RSI at 50. Neither bulls nor bears are stronger at this point. However, a closer look at price action will show that the price has made a lower high and a lower low.

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Therefore, if the overall trend is bearish, bears have a higher chance of winning the battle at the SMA. If they do, the price will bounce off the SMA and head lower to retest and possibly break below the 1.3675 support level. However, if bulls win, the price will likely retest resistance at 1.3900.

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