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Canadian Dollar little changed vs USD ahead of U.S. CPI Report

Published 2024-02-12, 05:42 p/m
Updated 2024-02-12, 05:42 p/m
© Reuters.

By Ketki Saxena   The Canadian dollar was little changed against its U.S. counterpart on Monday, continuing go trade in the holding pattern it’s been in since the middle of January. 

Trading remained thin as markets await Tuesday’s key U.S. inflation report, set to be a key driver for the pair. 

Analysts at Monex Canada note that, specifically, the focus will be on “Whether renewed strength in US inflation can force another wave of strength for the pair.”

They suggest that the loonie may be trading higher than its fundamental value, noting that “The Canadian dollar continues to trade above our Q1 forecasts as traders are reticent to price a BoC cut before the Fed.”

Tomorrow’s inflation data will be closely watched for insights on when the U.S. Federal Reserve may begin its much anticipated rate cuts

Markets are also awaiting further indications from the Bank of Canada about the projected timeline on rate cuts, and will be watching a speech from BoC Deputy Governor Rhys Mendes on Wednesday.

Markets now see a roughly 60% chance of a rate cut from the US Federal Reserve in May, while expectations for the Bank of Canada are to begin cutting rates in June. 

With the Canadian economic docket light this week, post U.S. CPI impetus is likely to come from risk appetite and crude markets, as Middle East tensions remain at the forefront. 

On a technical level for the pair, Scotiabank (TSX:BNS) analysts note that “The longer run charts do reflect a stalling in the USD’s new year rally and imply firm resistance now around 1.3540 (highs from last week and earlier in January, 50% retracement resistance from the USD’s Q4 drop).”

They recommend that “Near-term technicals are neutral but the broader pattern of trade favours fading USD gains through the low/mid-1.3500s and for the USD to put key support at 1.3360 under a bit more pressure in the weeks ahead.”

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