The Canadian dollar strengthens following inflation data, as markets anticipate the upcoming Federal Reserve decision
What’s Happening:
The Canadian dollar saw a modest uptick against the US dollar earlier today as investors evaluated the most recent inflation data.
What Happened:
Easing geopolitical tensions related to crude oil supply provided some relief to markets. However, speculation that the Federal Reserve might delay interest rate cuts strengthened the US dollar, adding downward pressure on the Canadian counterpart.
Why It Matters:
The ongoing conflict in the Middle East, now entering its third week, continues to send shockwaves through global markets. The United States has called on nations such as China to aid in escorting merchant vessels through the Strait of Hormuz—a vital corridor for global oil transport—in an attempt to stabilize oil prices.
Over the weekend, the U.S. carried out strikes targeting military locations on Kharg Island, a pivotal hub for Iran's oil exports. A warning was also issued, signaling further actions against Iran’s energy infrastructure should interference with the strait persist.
U.S. Dollar / Canadian Dollar
The U.S. dollar saw some adjustments against the Canadian dollar on Monday, as tensions eased in the Middle East. Several tankers successfully traversed the Strait of Hormuz, raising hopes for a full reopening of this crucial maritime route.
Canada’s economy benefited from a notable uptick in crude oil prices, a major driver for the nation’s exports. West Texas Intermediate (WTI) crude oil spot prices jumped 2.1% earlier today, climbing to $95.16 per barrel and lending support to the Canadian dollar.
On the domestic front, newly released economic data painted a mixed picture for Canada. Headline inflation experienced an unexpectedly sharp drop in February, declining to 1.8% from 2.3% in January—the lowest level in nearly a year. This comes amid a weaker labor market, with employment shedding 83,900 jobs and unemployment rising to 6.7%.
The housing sector showed a glimmer of resilience, as housing starts increased by 4.5% in February to an annualized 250,900 units, up from 240,148 in January. However, the result fell slightly short of market forecasts, which expected 252,500 units.
Despite supportive oil prices and improved housing starts, the Canadian dollar's momentum was tempered by ongoing strength in the U.S. dollar. The U.S. Dollar Index ticked 0.2% higher this morning to reach 99.92, reflecting continued demand for the greenback.
As a consequence, the USD/CAD pair edged lower today, trading at 1.3686 earlier in the session.
USDCAD technical analysis
The daily timeframe chart indicates that the USDCAD pair has experienced a rebound over the last few days, climbing from a low of 1.3640 to its current level of 1.3915.
The pair has now reached the major support and resistance pivot point based on the Murrey Math Lines tool at 1.3916. Additionally, it has broken above the 50-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) is also approaching overbought territory.
Given these factors, the most probable outcome is a continued upward movement, with bulls likely aiming for the key resistance level at 1.400.
About U.S. Dollar / Canadian Dollar
The US Dollar and Canadian Dollar pair is one of the most widely traded currency pairs, largely because of the extensive cross-border trade between the United States and Canada. The Canadian Dollar is often labeled as a commodity currency due to Canada's significant natural resource exports, particularly oil, which play a key role in its economy. As a result, the USDCAD remains a highly active and prominent currency pair in global forex markets.
Associated currencies
What to watch:
Key points to monitor: Investors are focusing on developments surrounding the ongoing US-Iran conflict and movements in the strategically critical Strait of Hormuz.
This week will also see several major global central banks convene for their respective monetary policy meetings, marking their first discussions since the onset of the Middle East tensions. Among these are the US Federal Reserve, the European Central Bank, the Reserve Bank of Australia, the Bank of Japan, and the Bank of England.
In addition, the Bank of Canada is set to announce its policy decision on Wednesday. Market expectations suggest the central bank will maintain the overnight target rate at its current level of 2.25%