- The dollar strengthened on optimistic inflation data.
- US core inflation rose to 0.4% in January, beating forecasts.
- The probability of a cut in May fell below 50%.
USD/CAD price analysis on Wednesday painted a bullish picture, with the pair holding close to the highs reached on Tuesday.
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The rise was fueled by a remarkable rise in the dollar, fueled by upbeat inflation data. Notably, the currency experienced its most significant move in almost a year.
Headline inflation fell from 3.4% in December to 3.1% in January, continuing its downward trend. However, this figure was much higher than what economists had expected. Moreover, core inflation rose to 0.4% in January, beating forecasts.
As the Fed emphasized at its last policy meeting, the economy remains resilient, particularly in the labor sector. Consequently, the decline in inflation has slowed to a crawl and may not convince policymakers to start cutting interest rates anytime soon.
In addition, the markets have eliminated the chances of a decrease in March. Meanwhile, the probability of a cut in May fell below 50%. The earliest possible time for the Fed’s first rate cut could be June.
The Canadian dollar fell despite a surge in oil prices. Usually rising oil prices support the currency because Canada is a net exporter of oil. However, the dollar’s gains following the inflation report were broad-based and weakened most major currency pairs.
Elsewhere, the Bank of Canada also played down expectations of a rate cut, saying inflation remains too high. Investors will await next Tuesday’s Canadian inflation report to gain insight into the possible timing of a rate cut in Canada.
USD/CAD Key Events Today
Traders will continue to digest US inflation reports and adjust bets on falling rates as today’s calendar of events is free of high-impact releases.
USD/CAD Technical Price Analysis: Bullish momentum surge, making new high
On the technical side, the USD/CAD price finally broke above the 30-SMA after consolidating around the 0.5 Fib level. Moreover, such strong bullish momentum pushed the price above the resistance at 1.3525. As a result, there is a new high, showing that the bulls are in control. The price is now well above the 30-SMA with the RSI near the overbought region, indicating solid bullish momentum.
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However, there could be a break or pullback to retest the recently broken 1.3525 level before the price continues to rise. If it finds support at 1.3525, it is likely to climb to the key resistance level at 1.3600.
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