Canadian dollar drifting as CPI jumps

The Canadian dollar is flat on Wednesday, despite a rise in consumer inflation in July. Currently, USD/CAD is trading at 1.2627, up 0.02% on the day.

Canada’s CPI climbs to 3.7%

With more parts of Canada’s economy reopening, the unleashing of pent-up demand has resulted in higher inflation. CPI climbed 3.7% YoY in July, up sharply from 3.7% in June. On a monthly basis, CPI rose 0.6%, its fastest pace since January. The average of Canada’s three measures of core inflation, which are the preferred indicators of the Bank of Canada, came in at 2.4%, its highest level since March 2009.

The BoC is closely monitoring inflation, which is above the Bank’s target of 2%. Similar to the Federal Reserve, the BoC is viewing the overshoot in inflation as transient and expects inflation levels to ease.

Attention will now shift to the Federal Reserve, which releases the FOMC minutes later today. Investors will be looking for signs that a majority of members are on board for a taper sooner rather than later. If this is the case, the US dollar should be able to extend this week’s rally. On Tuesday, Minneapolis Federal Reserve President Neel Kashkari, who is a dove, said that it was reasonable to expect tapering around the end of the year.

Next week’s Jackson Hole Summit will be closely watched for any signals from the Fed regarding a taper, possibly at the December meeting. Fed Chair Powell has taken great pains to telegraph his plans and keep the market in the loop. This means that if the Fed decides on a taper, it would clearly notify the markets at Jackson Hole or at the September meeting. With investors on guard for a tapering signal, sentiment towards the US dollar should remain strong.

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 USD/CAD Technical

• On the upside, 1.2630 is fluid. Above, there is resistance at 1.2747
• There is support at 1.2573, followed by support at 1.2474

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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