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Market update: USD/CAD struggles to test November 2020 high ahead of Canada CPI

The update to Canada’s Consumer Price Index (CPI) may keep the exchange rate afloat as inflation is expected to slow for the second month.

Source: Bloomberg

The recent rally in USD/CAD appears to be stalling as it struggles to test the November 2020 high (1.3371), with the Relative Strength Index (RSI) highlighting a similar dynamic as the advance in the exchange rate fails to push the oscillator into overbought territory.

Source: DailyFX

However, another downtick in Canada’s CPI may prop up USD/CAD as the headline reading for inflation is expected to narrow to 7.3% in August from 7.6% per annum the month prior, and evidence of easing price pressures may sway the Bank of Canada (BoC) as the central bank gauges “how much higher interest rates need to go to return inflation to target.”

As a result, the BoC may continue to implement smaller rate hikes after front-loading the hiking-cycle in July, and it remains to be seen if Governor Tiff Macklem and Co. will adjust the forward guidance at the next meeting on October 26 as the central bank is slated to release the updated Monetary Policy Report (MPR).

Until then, USD/CAD may stage further attempts to test the November 2020 high (1.3371) as the Federal Reserve is widely expected to deliver another 75bp rate hike, but the rebound from the 50-Day SMA (1.2980) may continue to unravel as it snaps the exchange rate snaps the series of higher highs and lows from last week.

In turn, USD/CAD may face a correction as long as the RSI holds below 70, and a larger pullback in the exchange rate may continue to alleviate the tilt in retail sentiment like the behavior seen earlier this year.

Source: DailyFX

The IG Client Sentiment report shows 32.91% of traders are currently net-long USD/CAD, with the ratio of traders short to long standing at 2.04 to 1.

The number of traders net-long is 12.20% higher than yesterday and 29.63% lower from last week, while the number of traders net-short is 3.75% higher than yesterday and 34.18% higher from last week.

The decline in net-long position comes as USD/CAD pulls back from a fresh yearly high (1.3344), while the crowding behavior appears to be dissipating despite a rise in net-short interest has only 29.83% of traders were net-long the pair last week.

With that said, another rise in Canada’s CPI may keep USD/CAD afloat even though it snaps the series of higher highs and lows from last week, and the exchange rate may stage further attempts to test the November 2020 high (1.3371) as the Federal Open Market Committee (FOMC) moves toward a restrictive policy.

USD/CAD rate daily chart

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.


The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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