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Outrageous rally of the Loonie follows higher than expected CPI numbers and positive crude oil price action

CAD - Canadian Dollar

Who said that inflation is subdued in the world? This is not the case in Canada. A fundamental key data releases came from Statistics Canada this morning: the consumer price index (CPI) rose 2 percent on a year over year basis in July, matching the increase in June. Most importantly, the prices soared year over year in all eight major components. On a seasonally adjusted monthly basis, the CPI increased 0.4 percent in July, following a 0.1 percent decline in June. Of course, the Loonie versus the Greenback rallied 0.71 percent, taking into account the lowest level of the Loonie yesterday and its highest level this morning.

As noted in the daily commentary yesterday, a wider move in the USD/CAD pair was expected because of the CPI release. The Loonie (USD/CAD) moved to the bottom of its range this morning. Technically speaking, in the long-term, the trend is up, but if the USD/CAD pair breaks the 1.3250 level, it might try to test 1.3230 and ultimately the 1.3200 handle. We will see, but for now, the FX market is in a "risk-on" mode, which helps positively the Loonie and the crude oil price in the very short-term.

The other factor that broke the downtrend of the Loonie to the upside was crude oil. It is trading very close to 57 dollars a barrel (WTI). Technically speaking, it has room to go closer to 58 dollars.

Key Movers

The Euro initially rallied in yesterday’s trading session, when Giuseppe Conte said "arrivederci" as Italy's Prime Minister after being in power for just over a year. He blamed Matteo Salvini for the government's fall, accusing him of "irresponsible rebellion." Italian bonds and the Euro rallied, while its stock market fell.

The British Pound started the trading session yesterday as an underperformer after PM Johnson sent a letter to EU Tusk, which was an ultimatum on the Irish backstop, but the Sterling recouped those losses and then some on a headline from Merkel, where she said, "…we will think about practical Brexit solutions."

The EUR/USD and GBP/USD pairs are falling 0.03 and 0.26 percent respectively this morning, and the EUR/CAD and GBP/CAD pairs are plunging 0.42 and 0.70 percent respectively.

Expected Ranges

USD/CAD: 1.3250 - 1.3332 ▼

EUR/CAD: 1.4688 - 1.4779 ▼

GBP/CAD: 1.6079 - 1.6130 ▼

AUD/CAD: 0.9009 - 0.9058 ▼

NZD/CAD: 0.8490 - 0.8526 ▼