USD/CAD drops to two-week low post-Canadian CPI, eyes 1.2500 mark amid weaker USD
|- A combination of factors prompted aggressive selling around USD/CAD on Wednesday.
- An uptick in crude oil prices, stronger Canadian inflation figures underpinned the loonie.
- Modest USD pullback from the two-year peak also contributed to the intraday selling bias.
The USD/CAD pair continued losing ground through the early North American session and dropped to a two-week low in reaction to a stronger Canadian CPI report, though recovered a few pips thereafter. The pair was last seen trading just a few pips above the 1.2525-1.2530 region, still down over 0.70% for the day.
Having failed to find acceptance above the very important 200-day SMA, the USD/CAD pair witnessed aggressive selling on Wednesday and finally broke down below a three-day-old consolidation phase. An uptick in crude oil prices underpinned the commodity-linked loonie and exerted downward pressure on spot prices amid modest US dollar corrective pullback from the two-year peak.
Concerns about tight global supply and a potential European Union (EU) embargo on Russian gas, assisted crude oil prices to recover a part of the previous day's heavy losses. Apart from this, hotter-than-expected Canadian consumer inflation figures provided an additional boost to the domestic currency and further contributed to the heavily offered tone surrounding the USD/CAD pair.
Statistics Canada reported that the headline CPI jumped to the highest level since January 1991 and rose 6.7% YoY in March, surpassing expectations for a reading of 6.1% and 5.7% previous. Adding to this, the Bank of Canada's core CPI, which excludes the eight most volatile items, rose by 1% MoM in March and accelerated to 5.5% on yearly basis, both beating consensus estimates.
On the other hand, the USD witnessed some profit-taking amid a sharp decline in the USD/JPY pair and retreating US Treasury bond yields. That said, the prospects for a more aggressive policy tightening by the Fed should act as a tailwind for the buck. This makes it prudent to wait for a break below the 1.2500 psychological mark before placing fresh bearish bets around the USD/CAD pair.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.