USD/CAD drifting, US consumer confidence jumps

• US consumer confidence surges
• Canada’s inflation rate remains at 3.1% higher than expected

The Canadian dollar is showing limited movement on Wednesday. In the North American session, USD/CAD is trading at 1.3325, down 0.06%.

Canadian inflation stays sticky

Canada’s inflation rate was unchanged in November at 3.1% y/y, above the consensus estimate of 2.9%. On a monthly basis, inflation remained unchanged at 0.1%, higher than the consensus estimate of -0.1%. Two key core inflation indicators remained unchanged with an average of 3.45% y/y, higher than the consensus estimate of 3.3%.

Inflation has come down nicely to around 3% but is proving to be stubborn in the final phase to bring it back down to the 2% target. The Bank of Canada has signalled that it expects inflation to remain sticky and has projected an inflation rate of 3.5% through the middle of 2024. The central bank has paused rates three straight times and with a stalled economy, there isn’t much reason to hike rates, which makes the BoC’s rate hike warnings appear rather hollow.

The markets are marching to a different tune and have fully priced in a rate cut in April, with a strong probability of a cut in March. The inflation report didn’t have much impact on market rate pricing but the Canadian dollar responded with gains of 0.50%.

In the US, the Conference Board consumer confidence index was much stronger than expected in November, surging from a revised 101 to 110.7. This was above the consensus estimate of 104 and marked a five-month high. The Conference Board noted that consumers are showing increasing confidence in business conditions and job opportunities and are less pessimistic about a recession.

USD/CAD Technical

• USD/CAD is putting pressure on support at 1.3309. Below, there is support at 1.3284
• There is resistance at 1.3356 and 1.3381

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