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  • Canada’s inflation dropped to 7.6% in July from 8.1% in June.
  • The BoC Governor believes inflation is still too high.
  • In the charts, the price is consolidating at a strong support level.

Today’s USD/CAD outlook is bullish as inflation in Canada shows signs of peaking. According to official data released Tuesday, Canada’s inflation significantly decreased in July due to decreasing fuel costs. The central bank governor stated that although the annual rate may have peaked, it will “remain too high for some time.”

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Another significant increase in interest rates forecasts underlying price pressures. Following the publication of the data, Bank of Canada Governor Tiff Macklem wrote an opinion piece for the National Post website in which he stated that inflation is still “far too high.”

According to figures from Statistics Canada, Canadian inflation dropped to 7.6% in July from an almost 40-year high of 8.1% in June. The objective of 2% set by the Bank of Canada was nevertheless substantially exceeded.

“It does confirm that inflation peaked, actually, in June … at least that’s what we think,” said Jimmy Jean, chief economist at Desjardins Group, adding: “It’s going to be slow to come down going forward.”

While the cost of food and demand-driven services, including travel and eating out, continued to rise, gasoline prices rose 35.6% in July compared to 54.6% in June, significantly slowing the annual price acceleration.

USD/CAD key events today

USD/CAD investors will pay attention to the FOMC meeting minutes set to come out later today for clues on the next meeting. They will also be keen to see the retail sales report, with core retail sales expected to drop from 1.0% to -0.1 and retail sales from 1.0% to 0.1%.

USD/CAD technical outlook: The next stop for bulls at the 1.29257 resistance

USD/CAD outlook

The 4-hour chart shows the price bouncing off the 1.28442 support level. This level is close to the 30-SMA, which is also offering support. The RSI is trading above 50, showing bulls have momentum on their side. If bulls maintain their strength, the price will retest resistance at 1.29257.

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However, the price may break below this support level and the 30-SMA. If this is the case, the price will likely fall further to the next support level at 1.27351.

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