USDCAD has sustained above its support level of $1.2884 from yesterday. The price is seen ranging above this level during the Asian session today. The market is currently awaiting the release of the US consumer price index to determine the next direction for this pair.
USDCAD has been imparted so much by the massive fall in oil prices, the Canadian main export product. The fall in oil prices had weakened the Canadian dollar against other pairs matched to it, especially the US dollar. Oil prices have fallen below $90 per barrel as investors feared a global recession. This has affected the performance of the Canadian dollar (CAD), having oil as one of its major export products.
The improvement in the US labour market seen in the positive reading from the NFP report last Friday has given the US dollar (USD) a substantial advantage over the Canadian dollar. The US labour market witnessed a massive new job creation totalling 528K which is high above the previous record of 398K. This has dramatically reduced its unemployment rate to 3.5%.
The dollar index has remained above 106 until now. This has given the US dollar an edge over the Canadian dollar.
Investors are hoping for more gains on the USDCAD as the market awaits today's US consumer price index (CPI) report.
Many experts have forecasted that this data will likely benefit massively from the US dollar. Analysts hope to reduce the US CPI to about 8.7% against the previous record of 9.1% on YoY in June. The primary cause of the inflation seen in the US economy last month came mainly from high oil prices. The limitations on oil supply occasioned by the Russian-Ukraine wars had dealt a blow to oil prices earlier in June. Thus, oil prices remained above $110 per barrel for the more significant part of June.
However, the story changed in July. Oil prices fell drastically below $100 per barrel all through July. The price has failed and is now below $90 in August.
Many therefore believe that the low price of oil now is a clear indication that inflation has peaked. The market, therefore, expected a reduction in the US CPI report to be released today. The Forecast for the US CPI MoM has been given as 0.2% against the previous record of 1.3% in June.
To accompany this also is the Core CPI which measures the changes in prices of goods and services purchased by consumers, excluding food and energy. The forecast for this data is 0.5%, while the previous record was 0.7%. The Core CPI is essential to analysts as it helps to pinpoint the primary source of the inflation witnessed in the economy.
We hope the USDCAD will rise above its current support at $1.2884 should the CPI report come out as expected.
What is the CPI report?
The consumer price index (CPI) report is an important economic data that measures the change in the prices of goods and services offered to consumers. This data is obtained by sampling the average costs of various products and services and comparing them with the previous prices in the last month. The CPI accounts for inflation within the economy but does not highlight the sectors where the highest inflation rate has been experienced. Analysts gave recourse to the Core CPI, which often accompanied this data to obtain the highlights of the sectors where the significant inflation had come from.
Both the CPI and core CPI reports are critical data to investors, as it helps in predicting the tone of the Fed during their next session. The significance becomes more apparent when they embark on another aggressive interest rate hike.
What impact will the CPI report have on the USDCAD?
The CPI report is expected to cause significant volatility on the USDCAD today, depending on the magnitude of the increase or decrease in the CPI reading.
The expected long-term impact of a reduction in the US CPI report is strengthening the US dollar. This means we can anticipate the bullish trend for the USDCAD to continue up to the next resistance at 1.2982.
On the contrary, a higher reading from this report will point to a higher inflation rate. This will further cause the Fed to aggressively hike the interest rate during their next September session.
Above all, the overall sentiment for the USDCAD is bearish.