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Canadian inflation jumps to three-decade high

Wednesday 16 March, 2022

Daily Currency Update

The Canadian dollar strengthened against the US dollar on Wednesday after data showed that annual inflation jumped to 5.7% in February, up from 5.1% in January. This is the highest since August 1991, making this the biggest surge in consumer prices in three decades. This reinforces expectations that the Bank of Canada will raise rates again at the April policy meeting. Earlier this month, the central bank raised its key interest rate to 0.50%, from the low of 0.25%that was in place since March 2020. Some analysts have priced in seven rate increases over the next 12 months, which could keep the Canadian dollar supported. USDCAD was down 0.32%, trading at 1.2726 at the time of writing.    

Key Movers

The US dollar slipped against a basket of currencies on Wednesday as market participants awaited a likely interest rate hike from the US Federal Reserve at 2 p.m. eastern. The central bank is expected to raise interest rates for the first time since 2018 and indicate that we could see a series of rate hikes throughout the rest of the year. Some analysts expect the Fed to raise rates at each of the remaining seven meetings this year to fight inflation that currently sits at 7.9%, a 40-year high. The prospect of higher rates, as well as the ongoing market risk aversion on the back of the Russia-Ukraine war, means investors could continue to flock to the US dollar. Should the Fed decide that more aggressive action is needed to control price rises and raise rates by 0.5%, there is potential for the dollar to rally. However, investors and analysts will be keenly attuned to any messaging over the impact of the war on future policy moves. The US Dollar Index was down 0.57% at 98.53 at the time of writing. The euro surged against the US dollar on Wednesday morning, buoyed by a tentative peace plan between Russia and Ukraine. However, the currency has since retreated to just below 1.10 as negotiations continued. EURUSD was trading around 1.0996 at the time of writing.

Expected Ranges

  • EUR/CAD: 1.3951 - 1.4049 ▲
  • GBP/CAD: 1.6601 - 1.673 ▲
  • AUD/CAD: 0.9175 - 0.9238 ▲
  • USD/CAD: 1.2693 - 1.2804 ▼