Canadian Dollar hits new lows after strong US inflation data
- Canadian Dollar dives as US Dollar rallies after strong US CPI data.
- Bank of Canada keeps rates on hold but hints at rate cut, probably in June.
- Bets on Fed cut in June drop from 50% to 17% following US inflation figures.
The Canadian Dollar (CAD) has tumbled nearly 0.8% in Wednesday’s early North American session to reach the lowest levels this year so far. US Consumer Prices Index (CPI) figures for March confirmed that inflation remains stubbornly high, sending US Treasury yields and the US Dollar to fresh multi-month highs.
Price pressure remains sticky at levels well above the Federal Reserve’s (Fed) 2% core inflation target as last week’s strong employment and steady price growth data suggested. These figures back the Fed’s hawkish side and practically ditch its plan for three rate cuts, which was devised in January. This is expected to underpin the US Dollar in the near term.
In Canada, the Bank of Canada (BoC) kept interest rates unchanged, as widely expected, but noted a downward trend in core inflation. The market has observed those comments as a hint toward a rate cut in June, which has increased downside pressure on the CAD.
Daily digest market movers: USD/CAD rallies as US CPI figures cast doubt on Fed cuts
- Canadian Dollar trades at five-month lows, weighed down by strong US CPI data and dovish-tilted BoC statement.
- US headline inflation rises at 0.4% pace in March against market expectations of 0.3% increase. The YoY rate accelerates to 3.5% from 3.2% in February.
- Core CPI shows similar picture with 0.4% monthly increase, above market consensus of 0.3%, with the yearly rate steady at 3.8%.
- Treasury yields for the US 10-year note reach key 4.5% level for first time this year. The 2-year yield jumped 25 basis points to hit levels right below 5%.
- Bets for Fed cut in June have plunged from about 50% to 17% following the release of US COPI data, according to CME Group FedWatch Tool.
- BoC left interest rates unchanged at 5%, but Governor Macklem revealed that the committee discussed the possibility of cutting rates.
- Later on Wednesday, the minutes of the last Fed meeting will be observed under a new perspective following March’s inflation data.
Canadian Dollar price today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.98% | 0.87% | 0.70% | 1.55% | 0.63% | 1.18% | 0.98% | |
| EUR | -1.01% | -0.12% | -0.25% | 0.57% | -0.34% | 0.23% | -0.02% | |
| GBP | -0.85% | 0.10% | -0.12% | 0.69% | -0.24% | 0.31% | 0.12% | |
| CAD | -0.72% | 0.24% | 0.15% | 0.81% | -0.09% | 0.48% | 0.22% | |
| AUD | -1.58% | -0.57% | -0.65% | -0.84% | -0.91% | -0.34% | -0.58% | |
| JPY | -0.63% | 0.35% | 0.25% | 0.05% | 0.93% | 0.59% | 0.35% | |
| NZD | -1.19% | -0.24% | -0.37% | -0.46% | 0.33% | -0.61% | -0.24% | |
| CHF | -0.99% | 0.03% | -0.09% | -0.27% | 0.59% | -0.32% | 0.24% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Technical analysis: USD/CAD breaks above channel top, next resistance at 1.3740
The US Dollar has broken above the last two months’ channel top as the strong US inflation data dampened hopes of a rate cut in June. Bulls have taken control, sending the pair to levels near 1.3700 so far.
The Relative Strength Index (RSI) is nearing overbought levels, which may lead to some correction. In that case, the reverse trendline might provide support on the path toward the 78.6% Fibonacci retracement at 1.3740 and 1.3770. The measured target of the broken channel is the mid-November high at 1.3845. Supports are the mentioned channel top, at 1.3650 and 1.3545.
USD/CAD 4-Hour Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.