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Canadian Dollar Talking Points
USD/CAD is rallying to a fresh monthly high (1.2985) after the U.S. unemployment rate (NFP) surged higher than expected, while a consumer price index (CPI) update is likely as the Fed struggles to rein in inflation to bring it down will affect the exchange rate.
Fundamental Forecast for Canadian Dollar: Bearish
An upbeat NFP report, coupled with a 306k decline in Canadian employment, is likely to keep USDCAD afloat in the coming days as the data prints into the monetary policy outlook and while the Bank of Canada (BoC) decides to “predict a path to higher interest rates” path of”.
Signs of a labor market slowdown could prompt the Bank of Canada to normalize monetary policy at a slower pace, as Governor Tiff Macklem and his colleagues acknowledged “interest rates must continue to rise” and expectations for another 100 basis point rate hike receded. The Bank of Canada weighs in on whether the Canadian dollar can be “guided by the bank’s ongoing assessment of the economy and inflation.”
By contrast, it remains to be seen whether the CPI update will affect the near-term outlook for USD/CAD given the continued improvement in the US job market and the likelihood of a more anti-inflationary push from the Federal Open Market Committee (FOMC). The month’s 9.1% year-over-year growth narrowed to 8.7%, while core reading is expected to rise to 6.1% year-over-year from 5.9% in the same period.
A series of mixed data prints could trigger a knee-jerk reaction in USD/CAD, as Chairman Jerome Powell concedes that “slowing the pace of gains may change as we assess how our cumulative policy adjustments will affect the economy and affect inflation.” right,” but another unexpected rise in U.S. consumer prices could spark a bullish reaction in the dollar as it puts pressure on the FOMC to implement ultra-hawkish policies.
Against this backdrop, USD/CAD is likely to continue from July highs (Jan-Dec-May).3224) as CPI points to persistent when inflation.
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