Home Daily Commentaries USD/CAD touches fresh weekly high

USD/CAD touches fresh weekly high

Daily Currency Update

Following the release of the Consumer Price Index (CPI) report, USD/CAD trades near 1.32670. CPI data met expectations but raised doubts about the likelihood of further hikes by the Bank of Canada (BoC). In May, Canada's annual inflation rate eased to 3.4%, while grocery prices continued their upward trajectory with a year-over-year increase of 9%. Excluding food and energy, prices rose by 4.0%, compared to a 4.4% rise in April. In a surprising move, the central bank raised its key interest rate by 25 basis points (bps) in early June, indicating a tightening following two consecutive holds. Policymakers assessed that the previous monetary policy stance lacked sufficient restraint, and the decision to pursue future rate hikes would hinge on data. Crude oil prices remain close to $68/barrel, close to the lows from March, as traders evaluate the possibility of declining demand.

Key Movers

The US dollar index (DXY) rose to 102.8 after experiencing three consecutive sessions of decline, this increase was driven by robust US data that indicated the economy's resilience in the face of persistent inflation and higher borrowing costs. This further strengthens the argument for additional tightening of Federal Reserve policies. The data revealed a significant rise in US consumer confidence in June, reaching its highest level in over a year. Additionally, business spending, durable goods orders, and home sales remained steady in May. Federal Reserve Chair Jerome Powell expressed the likelihood of further rate hikes due to the ongoing high inflation. Echoing his sentiment, other Federal Reserve officials including San Francisco Fed Bank President Mary Daly, viewed projections of two more rate increases this year as highly reasonable.

The euro surpassed the 1.09 mark, nearing its six-week peak of 1.1 from June 22nd. This uptick comes as investors anticipate additional rate hikes in the region, disregarding the ongoing technical recession. Inflation remains stubbornly high in the eurozone. During the European Central Bank (ECB) Forum on Central Banking, ECB President Christine Lagarde suggested that reaching peak interest rates is unlikely to happen soon. Money markets are still speculating that the ECB deposit facility rate will reach approximately 4%. Lingering doubts about the eurozone’s economic health persist due to worrisome Purchasing Manager’s Index (PMI) and IFO Institute data which continue to raise concerns about the economic outlook.

The pound fell below the 1.26500 mark, following its peak at a 14-month high of $1.2848 on June 16th. This decline was driven by investors’ concerns over the possibility of a recession resulting from the Bank of England's (BoE) aggressive tightening of policies in recent months. Governor Andrew Bailey emphasized that the recent interest rate hikes reflected the economy's resilience and expectedly persistent inflation, which was larger than expected, and expressed their commitment to further tightening measures.

Expected Ranges

  • EUR/CAD: 1.4425 - 1.451 ▼
  • GBP/CAD: 1.6739 - 1.6833 ▼
  • AUD/CAD: 0.8758 - 0.8824 ▼
  • USD/CAD: 1.317 - 1.3272 ▲