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USD/CAD speculators await the crucial US CPI, as bulls test 1.3400
USD/CAD bulls are active and testing the 1.3400 level. US CPI may now be the most influential factor for the week.
The USD/CAD exchange rate remained unchanged in Asia, touching 1.3400 after trading within a narrow range of 1.3381 and 1.3406 thus far. The US Dollar is making a little rebound, but domestic employment data is keeping a lid on the pair, as expectations for higher local interest rates continue to boost the Canadian Dollar.
While good news is being bought into the markets as China reopens, supporting a bid in the oil price so far this week, investors are awaiting this week's United States inflation data after a flood of market-moving economic data from the United States economy to start the year.
In the meantime, though, the Bank of Canada is once again under scrutiny due to Friday's higher Canadian employment report. TD Securities analysts highlighted that a further hike this month is unlikely to have a significant impact on the CAD given the current state of market pricing. Rather, there is a possibility that this increase, if realized, may be viewed as the final one, given the pressures mounting on family imbalances and housing in general.
As for USDCAD, TD Securities analysts "believe 1.35 serves as a broad anchor for the time being, but we anticipate a more decisive make-or-break moment for the pair and the CAD in general following the BoC's decision;'
"USD/CAD is coiling into a flag formation created from the October highs/August 2022 lows," noted the analysts. Strategically, they expect the CAD to underperform in the first half of this year. "Tactically, the CAD is anticipated to remain stable to slightly stronger on crosses after the Nonfarm Payrolls figure."
The markets are still absorbing Friday's Nonfarm Payrolls data, which lends plausibility to a Federal Reserve policy shift. This is why this week's inflation statistics are so crucial. Analysts at Brown Brothers Harriman noted, "The employment data was good overall as unemployment returned to the cycle low of 3.5%, confirming the notion that the labor market remains red hot."
"However, markets focused on the larger-than-anticipated 4.6% annual decline in average hourly earnings," However, researchers suggested that if the labor market continues to be as tight as it appears, salaries are unlikely to fall much lower in the coming months.
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