Canadian dollar quiet ahead of Canadian CPI

• Canada inflation expected to drop to 3.2%
• US releases FOMC minutes

The Canadian dollar continues to have a quiet week. In the European session, USD/CAD is trading at 1.3709, down 0.12%. We could see stronger movement in the North American session, with the release of Canada’s inflation report.

Canadian inflation expected to drop

Canada’s inflation rate has been dropping and the markets are expecting good news from today’s inflation release. October inflation is expected to have declined to 3.2%, compared to the 3.8% gain in September.  Monthly, CPI is expected to increase to 0.1%, up from -0.1% in September. CPI Trimmed Mean, a key core inflation gauge, is projected to dip to 3.6%, down from 3.7% in September.

The expectations for the rosy inflation report are based on the sharp decline in gasoline prices, with crude oil plunging about 10% in October. As well, the rise in food prices has slowed. Inflation is still well above the 2% inflation target, but inflation has been moving in the right direction and another drop will be an encouraging sign for the Bank of Canada.

The central bank has held rates at 5% at its past two meetings, as GDP has slowed and the employment market is showing some cracks in its resilience. The BoC has stressed that it is prepared to raise rates again if needed, but another pause at the December meeting will raise expectations that rates have peaked and there is talk of a rate cut in mid-2024.

All eyes will be on the Federal Reserve, which releases the minutes of its November meeting later today. At the meeting, the Fed held rates at 5.25-5.50% for a second straight time. Fed Chair Powell struck a hawkish note after the meeting, saying that inflation remained too high and left the door open to further rate hikes. The minutes will likely have a similar message and that could provide a boost to the sluggish US dollar.

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USD/CAD Technical

• 1.3638 and 1.3552 are providing support
• There is resistance at 1.3741 and 1.3827

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