Canadian inflation remains excessively high. What does it mean for USD/CAD?

Last week, the Bank of Canada’s Toni Gravelle said that it is possible that the Bank of Canada may have to raise rates above neutral because the economy may become less sensitive to rate hikes. On Wednesday, Canada released CPI for April and the data backs up Gravelle’s view to hike rates. The headline print was 6.8% YoY vs an expectation of 6.7% YoY and 6.7% YoY in March. This was the highest increase since January 1991. In addition, Core CPI beat expectations by an even larger margin. The print was 5.7% YoY vs and expectation of 5.4% YoY and March’s print of 5.5% YoY. This is the highest level for the Core number EVER! As a reminder, the Bank of Canada raised rates on April 13^th by 50bps to 1% and said that more rate hikes will be necessary as demand increases and inflation persists well above the BOC’s target of 2%. The next BOC meeting is June 1^st.

Everything you need to know about the Bank of Canada

On a daily timeframe, USD/CAD had been trading in a sideways channel between 1.2453 and 1.2965 since mid-November 2021. On May 5^th, the pair broke above the top trendline of the channel and reached a high of 1.3077 on May 12^th, just below the 127.2% Fibonacci extension from the highs of December 20^th, 2021 to the low of April 5^th, near 1.3116. However, thus far, the move has proved to be a false breakout as price sold off for the next three consecutive day and moved back into the range.

Source: Tradingview, Stone X

Trade USD/CAD now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a 240-minute timeframe, USD/CAD has been moving higher in an upward sloping channel of its own since April 21^st. However, on May 16^th, the pair broke below the channel and pulled back to 38.2% Fibonacci retracement from the lows of April 21^st to the highs of May 12^th, near 1.2840. If price continues to move lower, first support is at the 50% retracement from the same timeframe near 1.2767, then double bottom support at 1.2725. If price breaks below there, it can fall to the 61.8% Fibonacci retracement from the recently mentioned timeframe near 1.2695. However, if the current move proves to be just a pullback in the uptrend, first resistance is at the bottom trendline of the upward sloping channel near 1.2950, then the recent highs at 1.3077. If price breaks above, it can then move to the 127.2% Fibonacci extension mentioned on the daily timeframe near 1.3116.

Source: Tradingview, Stone X

Notice in the bottom pane on the 240-minute chart that USD/CAD and Crude Oil are once again in a strongly correlated negative relationship with a reading of -0.81. Any readings below -0.80 are considered strong. Therefore, this means that on a shorter timeframe, when Crude Oil moves in one direction, USD/CAD should move in the opposite direction. Note that this is only for the 240-minte timeframe. On a daily timeframe the current correlation is near 0, which means there is no relationship at all. If the strong negative relationship continues on the shorter timeframe, it may move to the longer daily timeframe.

The Canadian CPI print confirmed what the markets had already expected: that inflation continues to rise in Canada and will force the BOC to raise rates further. However, it is important to watch the recent price action in USD/CAD. Is this this just a pullback in an uptrend or will this be a deeper correction? The direction of crude oil on a 240-minute timeframe may provide clues.

Learn more about forex trading opportunities.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.