By Ketki Saxena
Investing.com – The Canadian dollar rallied against its US counterpart today, following lower than expected US CPI data. Treasury yields declined, the US dollar weakened across the board, and the USD/CAD dropped towards a fresh seven-week lows as investors received justification for hopes that the US Federal Reserve will tame its aggressive monetary policy tightening stance in February, and going forward this years. The Canadian dollar meanwhile was supported by the rebound in risk-sentiment and crude prices.
The US Consumer Price Index for December ticked lower this month, dropping to 6.5% from November’s 7.1% reading. Core CPI, which excludes volatile items like food and energy, dipped to 5.7% YoY, below expectations for a 6% reading.
Treasury yields declined across the curve following the data, with the US dollar index dropping to over 6 month lows, while risk-sensitive assets including equities and the Canadian dollar received a boost.
The commodity linked Canadian dollar was also supported by gains in crude, as Fed expectations eased, optimism around China continued to boost demand, and as a further raft of sanctions on Russian crude oil renewed worries of dwindling supply. The U.S. Energy Information Administration noted the upcoming EU ban on seaborne imports of Russian crude on Feb. 5 would be more disruptive than the EU ban implemented in December 2022.
On a technical level, analysts at Just Markets note “Buy trades should be considered after the breakout of 1.3439, but only with short targets and confirmation. Sell deals are better to look for on intraday time frames from the resistance level of 1.3492 or 1.3513, but with a confirmation in the form of a reverse initiative on the lower time frames.”
“Alternative scenario: if the price breaks out and consolidates above the resistance level of 1.3632, the uptrend will likely resume.”