Canadian dollar on upswing, CPI next

The Canadian dollar has enjoyed a good run this week, rising 1.28%. USD/CAD is trading quietly at 1.2888, up 0.13% on the day.

Canada’s inflation expected to accelerate

It seems that everywhere you turn, inflation is going up and up. It could well be Canada’s turn later today, with the release of the June inflation report. Headline CPI rose to 7.7% in May and is expected to surge to 8.4%. To get an idea of how far behind the Bank of Canada is on the inflation curve, one only has to look at the Bank’s inflation forecasts. Back in April, the BoC forecast that inflation would average 5.8% in Q2, but had to revise that to 8.0% at its June meeting. The BoC also lowered its growth forecast from 4.2% to 3.5% at the meeting, as current economic conditions are challenging, to put it mildly. The cost of living crisis is getting worse, and there is the spectre of a recession if the housing market cools and consumers reduce their spending.

The BoC cannot be faulted for sitting with its arms folded while inflation sizzles, as the Bank hit back with a massive 100bp rate hike in June. Still, the sought-after inflation peak remains as elusive as ever, barring a huge surprise from today’s inflation data. The BoC has some time to digest economic releases, with the next meeting not until September 7th. The Fed will meet on July 27^th and is expected to raise rates by 75bp or possibly 100bp. This will widen the US/Canada rate differential and could weigh on the Canadian dollar.

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USD/CAD Technical

• USD/CAD is putting pressure on resistance at 1.2899. Above, there is resistance at 1.3061
• There is support at 1.2774 and 1.2612

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