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Canada’s Consumer Price Index (CPI) rose by 0.3%, slightly stronger than 0.1% that was expected. But Core CPI, which is more closely watched by the central bank, met expectations and rose by 0.3%. USD/CAD makes a small rise and gets away from the support line.

After a jump of 0.7% in Core CPI in February, it seemed that prices would be on the rise, making a more speedy rise in prices. But the next month saw a drop in prices (-0.2%) and while there was a small surprise last month – 0.3% rise instead of 0.2%, inflation is still under control.

CPI, which is expected to be more volatile rose by 0.3% last month. When Core CPI fell, it only remained unchanged – 0%. This controlled inflation means that the central bank’s tightening cycle will be slower.

USD/CAD now trades at 1.0230, up from 1.0215 before the release. A small rise, but still getting away from the 1.02 line, which was the 2009 low.

The pair made a move lower last week as it slid down the 1.02 – 1.04 range and closed the week near 1.02. Indeed, at the wake of the new week, with the Chinese announcement fueling commodity currencies, USD/CAD made another move downwards and went as low as 1.0140, but this move was temporary and the pair returned back above 1.02.

A retreat of the loonie will meet resistance at 1.04, followed by 1.0560 which was a pivotal line in recent weeks. This is followed by 1.0750, which is a very strong resistance line.

A new break below 1.02 will open the road for parity, last visited in April. Below the ultimate line of parity, 0.98 is the next line of support, followed by 0.97. USD/CAD needs a leap in oil prices or another rate hike to approach these areas.

The Bank of Canada made its first rate hike since the crisis three weeks ago. Mark Carney lifted the rate by 0.25% to 0.5%. The rise in the price of oil that we’ve seen recently increases the chances of another rate hike.

Canada’s economy benefits from higher oil prices, as it exports this “black gold”. In addition, it contributes to rising prices, and a rate hike is a strong measure to counter inflation.

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