- Markets were caught by unexpectedly stubborn US CPI inflation on Tuesday.
- Canada sees notable lack of representation on the economic calendar this week.
- Canadian Dollar is mixed on the day, but sharply lower against the US Dollar.
The Canadian Dollar (CAD) tumbled against the US Dollar (USD) on Tuesday after US Consumer Price Index (CPI) inflation ticked higher on a monthly basis, sending the Greenback surging across the major currency board. Inflation on an annual basis was also higher than consensus in January, pushing out market hopes of a May rate cut from the Federal Reserve (Fed).
Canada has only a thin showing on the economic calendar this week, and it is relegated to strictly low-tier releases. These include Canadian Housing Starts and Manufacturing Sales on Thursday and Foreign Investment figures on Friday. Canadian January Housing Starts are expected to tick upward slightly, but US Retail Sales will entirely overshadow the release.
Daily digest market movers: Canadian Dollar takes a backseat as markets focus on US CPI inflation
- Headline MoM US CPI inflation ticked higher in January to 0.3% versus the expected 0.2%.
- December’s CPI saw a slight revision from 0.3% to 0.2%.
- Core annualized US CPI inflation held steady at 3.9% compared to the forecast of 3.7%.
- YoY US CPI fell to 3.1% from 3.4%, but markets were hoping for a further deceleration to 2.9%.
- Still sticky US CPI inflation pushes out market bets of a first Fed rate cut to June or July.
- Money markets now see a 62% chance of no rate cut in May, according to the CME FedWatch Tool.
- The US Dollar is surging on the day as markets tumble back into the safe haven currency.
- Wednesday sees talking points from Fed officials, including Goolsbee and Barr.
- Thursday brings US Retail Sales, where markets are hoping for a -0.1% print for January compared to December’s 0.6%.
- Friday will wrap up a US-data-heavy week with US Producer Price Index (PPI) figures and the Michigan Consumer Sentiment Index.
Canadian Dollar price today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.52% | 0.22% | 0.81% | 1.08% | 0.89% | 1.12% | 1.28% | |
| EUR | -0.53% | -0.30% | 0.29% | 0.56% | 0.38% | 0.60% | 0.75% | |
| GBP | -0.21% | 0.31% | 0.60% | 0.87% | 0.69% | 0.92% | 1.07% | |
| CAD | -0.82% | -0.29% | -0.59% | 0.25% | 0.09% | 0.31% | 0.48% | |
| AUD | -1.11% | -0.57% | -0.88% | -0.27% | -0.19% | 0.05% | 0.23% | |
| JPY | -0.90% | -0.37% | -0.68% | -0.09% | 0.18% | 0.22% | 0.39% | |
| NZD | -1.14% | -0.62% | -0.91% | -0.33% | -0.05% | -0.23% | 0.16% | |
| CHF | -1.28% | -0.76% | -1.06% | -0.46% | -0.22% | -0.38% | -0.15% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Technical analysis: Canadian Dollar gives up ground to surging US Dollar but trades mixed overall
The Canadian Dollar (CAD) slipped around three-quarters of a percent against the US Dollar on Tuesday, also losing around half of a percent against the Pound Sterling (GBP). The CAD recovered half a percent against the Swiss Franc (CHF) and around a third of a percent against the New Zealand Dollar (NZD).
The USD/CAD surged to an eight-week high on Tuesday, hitting a near-term high of 1.3578. The pair surged over a full percent bottom-to-top on the day, easily reclaiming the 1.3500 handle.
Tuesday’s bull run in the USD/CAD has the pair breaking into the top side of the 200-day Simple Moving Average (SMA) near 1.3477, and the trick for buyers will be to keep the pair from slumping back into a rough consolidation range below 1.3550. On the bottom end, the 50-day SMA near 1.3417 will provide a near-term technical floor.
USD/CAD hourly chart
USD/CAD daily chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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