USD/CAD Price Analysis: Canada’s Inflation Drops in December

• Canada’s inflation decreased from 6.8% in November to 6.3% in December.

• Consumers in Canada paid 13.1% less at the pump in December than in November.

• The probability of a quarter-point boost by the Bank of Canada next week has increased.

Today’s USD/CAD price analysis is bearish ahead of another rate hike from the BoC. The annual inflation rate in Canada, according to Statistics Canada, fell more than expected in December as gas prices fell, while core indicators showed little change from November. This implies that there will be another increase in interest rates this month.

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Compared to the analysts’ median estimate of 6.4%, the inflation rate dropped from 6.8% in November to 6.3% in December. Analysts had predicted a 0.5% price decline from the previous month but saw a 0.6% dip.

According to Statscan, consumers paid 13.1% less at the pump in December than in November. This is the highest monthly decrease in over three years.

CPI-median and CPI-trim, the central bank’s two core gauges of underlying inflation, averaged 5.2% against 5.3% in November.

The headline figure for December is still more than three times what the Bank of Canada targets for inflation. Most economists predicted that the Bank of Canada would increase interest rates by 0.25 percentage points on January 25 when it meets next.

The probability of a quarter-point boost by the Bank of Canada next week has increased from 70% before the data to 77%, according to the money markets. 

USD/CAD key events today

Investors expect important data from the US, including the producer price index (PPI) and retail sales data. The PPI will show inflation at the manufacturing level and is an indicator of consumer inflation.

USD/CAD technical price analysis: The price is sticking to the 30-SMA

The 4-hour chart shows USD/CAD chopping through the 30-SMA without a clear direction. Bears and bulls are equally matched, with the nearest support at 1.3351 and resistance at 1.3450.

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Currently, the price is slightly below the SMA and the RSI below 50, indicating that bears have control. They will likely push the price lower and retest the 1.3351 support. The price will only pick a direction when the price breaks below this support or above the 1.3450 resistance.

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