USD/CAD – Surprisingly strong US PMI surveys, BoC remains cautious

• US services PMI rises to 52.9, manufacturing PMI hits 50.3
• BoC holds rates
• USDCAD recovery stalls

US economic data was surprisingly strong today, with both the services and manufacturing PMIs comfortably exceeding expectations and reinforcing the message that the economy is in good shape, even getting better.

Of course, these are just surveys and can be volatile but the fact both jumped as much as they did and both are now in growth territory is very promising for the economy but may be slightly concerning for the Fed if it is concerned about the strength of demand.

BoC cautious on rate cut talk amid sticky inflation

The Bank of Canada left interest rates unchanged at the January meeting and signalled it isn’t yet ready to consider rate cuts. That’s very aligned with the message we’re getting from other central banks but also what is to be expected until policymakers are absolutely convinced it won’t backfire, at which point they’ll probably start cutting quite quickly.

The stickiness of core inflation is clearly the key issue here as it and the headline figures are only a little above target. The difference is progress appears to have stalled which will naturally make policymakers nervous. Markets now expect a rate cut later in the second quarter to allow time for it to fall further and only 100 basis points in total this year.

Fib continues to show strong resistance

It’s been a choppy session today and one in which we’re arguably none-the-wiser on whether we’ve seen an exhausted correction or there’s more to come.

USDCAD Daily

Source – OANDA

The high last week fell around the 50% Fibonacci retracement level and it’s failed to scale those heights since. That’s not to say it won’t but the struggle we’re now seeing may be indicative of a recovery that’s run its course. Should it surpass those highs, the next key test will fall around the 61.8% Fib which coincides with the December highs and early November lows.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.