- Inflationary prices in Canada rose by 2.0% in October.
- The dollar weakened after rising early Tuesday on safe-haven demand.
- Markets are awaiting further clues on the prospects for a Fed rate cut.
USD/CAD price analysis shows lower sentiment after data revealed Canadian inflation was higher than expected. Meanwhile, the dollar weakened as safe-haven demand sparked by Putin’s nuclear announcement faded.
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Data on Tuesday showed that price inflation in Canada rose 2.0 per cent in October, above estimates of 1.9 per cent. Moreover, it was well above the previous reading of 1.6%. Consequently, traders have reduced bets on another big rate cut in December.
Initially, low inflation and weak growth in Canada prompted the Bank of Canada to cut rates by 50 basis points in October. Furthermore, markets were pricing in a 38% chance of another such move in December. However, after the inflation report, this probability dropped to 23%. As a result, the Canadian dollar strengthened against the greenback.
On the other hand, the dollar weakened after rising early on Tuesday on safe-haven demand. Traders rushed to seek safety after Putin announced a lower threshold for using nuclear energy against Ukraine. This change came after Ukraine used American missiles to attack Russia. However, the US did not respond, allaying fears of nuclear war and an escalation in the Russia-Ukraine war.
Meanwhile, markets await further clues on the Fed’s rate cut prospects. Policymakers maintained a somewhat hawkish tone, leading to a decline in bets for a December rate cut. Furthermore, looming policy changes under the Trump administration have changed the outlook for the Fed’s future moves. Optimistic economic data will further support the break in December. On the other hand, if the data is in line with forecasts or slightly lower, the Fed will cut rates by 25 basis points in December.
USD/CAD Key Events Today
USD/CAD Technical Price Analysis: Bears fall to 1.3951 support
From the technical side, USD/CAD the price broke below its bullish trend line, indicating a change in sentiment. At the same time, the price is trading well below the 30-SMA, showing a solid bearish lead. Meanwhile, the RSI is trading near the oversold region, indicating solid bearish momentum.
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However, the bears face the support level of 1.3951. A break below this level will allow the bears to revisit the 1.3850 level. However, before that, the price could retest the recently broken trend line.
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