Canadian dollar vulnerable to another slowdown in Canadian CPI
Canadian Dollar Talking Points
Recent developments in the Relative Strength Index (RSI) increase the possibility of a short-term USD/CAD pullback as the oscillator reverses ahead of 70, but the index update for Canada’s consumer price index (CPI) could keep the exchange rate afloat as inflation is expected to slow for the third month in a row.
Canadian dollar vulnerable to another slowdown in Canadian CPI
USD/CAD restores the bullish reaction to the US Consumer Price Index (CPI) to follow the rebound in commodity bloc currencies, and the exchange rate may struggle to hold the lead against at the monthly low (1.3503) as the RSI moves away from overbought territory.
Therefore, USD/CAD could threaten the monthly opening range as bullish momentum wanes, but another decline in Canada’s CPI could support the exchange rate as headline inflation is expected fall to 6.8% in September, against 7.0% per year. year the previous month.
Signs of easing price pressures could weigh on the Canadian dollar as they encourage the Bank of Canada (BoC) to scale back its up cycle, and it remains to be seen whether the Governor Tiff Macklem and Co. will adjust forward guidance in the next rate decision on October 27, with the central bank due to issue the updated Monetary Policy Report (MPR).
Until then, speculation of smaller BoC rate hikes could keep USD/CAD afloat as the Federal Reserve pursues tight policy, but a larger pullback in the exchange rate could continue to dampen the tide. tilt in retailer sentiment like the behavior seen earlier this year.
The IG Client Sentiment (IGCS) report shows that 42.86% of traders are currently net longs on USD/CAD, with a short to long traders ratio of 1.33 to 1.
The number of net long traders is 37.39% higher than yesterday and 19.78% higher than last week, while the number of net short traders is 10.29% lower than yesterday. yesterday and 23.24% lower than last week. The rise in net buying interest helped ease crowding behavior as only 31.05% of traders were net long on USD/CAD last week, while the lower position Net selling comes as the exchange rate makes the advance from last week. .
That said, another slowdown in Canada’s CPI could dampen the recent decline in USD/CAD as it fuels speculation for a lower rate hike from the Bank of Canada, but recent RSI developments increase the possibility of a short-term pullback in the exchange rate as the oscillator reverses ahead of overbought territory.
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USD/CAD daily rate chart
Source: Commercial view
- USD/CAD is consolidating after breaching the October open range, but lack of momentum to hold the region from 1.3630 (38.2% retracement) to 1.3660 (78 expansion, 6%) could cause the exchange rate to pull back more as the Relative Strength Index (RSI) reverses ahead of 70.
- A break/close below 1.3540 (23.6% retracement) could lead to a test of the monthly low (1.3503), with the next area of interest around 1.3460 (61.8 retracement). %).
- However, USD/CAD may continue to consolidate as long as it holds above the region of 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion), with a return above the 1.3800 handle (161.8% expansion) returning to the yearly high (1.3978%). ) on the radar.
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— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
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