- Economists are expecting a drop in Canadian inflation.
- Inflation in Canada is becoming entrenched.
- The BoC will raise rates aggressively if inflation rises.
Today’s USD/CAD outlook is slightly bearish ahead of Canadian inflation data. Tuesday will see the release of Canada’s August inflation figures. According to economists, the headline rate will go down to 7.3% from 7.6% in July and a four-decade high of 8.1% in June.
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But the three basic measures of inflation—CPI Common, CPI Median, and CPI Trim—which are considered to be a better sign of underlying pricing pressures when combined will be the focus of attention. In July, the three-month average reached a new high of 5.3%.
“Rapidly cooling growth, the pullback in housing prices, and less pressure on supply chains will help cap core inflation relatively soon,” said Doug Porter, chief economist at BMO Capital Markets.
“However, we believe it will be sticky and descend only slowly through 2023,” he added.
According to economists consulted by Reuters, there are several indications that inflation is spreading throughout the economy, including a broadening of price increases, an increase in wage settlements, and rising consumer and business inflation expectations.
The Bank of Canada has wanted to prevent such an outcome, stating that it would necessitate more aggressive interest rate increases to bring inflation under control.
USD/CAD key events today
Investors will pay attention to Canada’s inflation data set to come out later in the day. This report has a lot of weight as it impacts the BoC’s monetary policy. It will therefore give markets clues on the next rate hike.
USD/CAD technical outlook: Retracement before the uptrend continuation
The 4-hour chart shows the price trading above the 30-SMA and the RSI above 50. This is a sign that it is an uptrend with strong bullish momentum. The uptrend paused at 1.3325, where it experienced strong resistance. At this point, the RSI showed a small bearish divergence, confirming that buyers were too weak to break above 1.3325.
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Sellers have since pushed the price lower but are coming close to a strong support zone. This zone is made up of the 30-SMA and the 1.3200 key level. If sellers cannot break below this zone, buyers will return to take the higher price and retest resistance at 1.3325.
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Saqib Iqbal
