Canadian Dollar up amid upbeat inflation that spurs rate hike speculations

The Canadian Dollar got a push on Friday as the consumer price index in Canada rose more than expected in July. Investors are now speculating on a BoC rate hike and buying the CAD against the USD.

Consumer price index in Canada rose 0.5% between June and July, well above expectations and June figure of 0.1% increase. Year over year, Inflation rose to a 3.0% rate, well above the 2.5% expected by market and that would be a steady rate from the 2.5% posted on June.

“All eight major components rose year over year in July. The transportation index (+8.1%) was the largest contributor to the year-over-year increase,” said the official report by Statistics Canada.

“Energy costs were 14.2% higher compared with July 2017, after increasing 12.4% year over year in June. Consumer prices for transportation rose 8.1% in July, following a 6.6% increase in June. Year-over-year gains in the price of services were higher in July (+3.2%) than in June (+2.2%).”

Bank of Canada CPI rose 0.2% monthly in July, against the 0.1% deflation expected by market and acceleration from 0.1 published on June.

Year over year, BoC inflation rose to 1.6% rate, while experts waited for a 1.3% number, the same of June.

USD/CAD down to 1.3070

USDCAD daily chart August 17

USDCAD daily chart August 17

The US Dollar is trading down against its Canadian counterpart as investors welcomed inflation report in Canada and they started believing in the possibility of an interest rate hike by the Bank of Canada.

While the USD/CAD was testing the multi-day resistance at 1.3175, inflation data sent the pair down to break below the 55-day moving average at 1.3130 and to test the 1.3070 level, which is the 20-day moving average.

The pair is currently trading 0.61% down on the day at 1.3075. Technical conditions are mixed for the cross; while MACD is still below its midlines, but improving, RSI is showing more bullishness is possible. So, investors can believe that the short-term uptrend is intact, but remember that the interest rate factor is now a key player.

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