USD/CAD Eyes Further Price Dumps Ahead of Canadian CPI Report

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Azeez Mustapha

Updated: 13 October 2022

The USD/CAD pair resumed a bearish momentum on Tuesday as the currency pair approached its monthly low of 1.2837.

The Canadian dollar could come under additional pressure from the Consumer Price Index (CPI) data release tomorrow as economists expect an increase to 8.4% in June from the 7.7% annual rate recorded in May. Also, worsening inflation figures in Canada may prompt the Bank of Canada (BoC) to announce another 1% interest rate hike at its next meeting on September 7, as “the Governing Council continues to judge that interest rates will need to rise further.”

The Canadian Bank’s shift in stance to normalizing its monetary policy could keep the USD/CAD under increased pressure as BoC Governor Tiff Macklem and other bank staff fight to get inflation under control. However, the US Federal Reserve’s rate decision on July 27 should dictate the near-term dynamics of the currency pair, as the Fed remains willing to activate stricter policy to combat inflation.

In the meantime, the Loonie will likely stage a larger correction as we continue to see a series of lower lows and highs, a clear indication of a downtrend. Furthermore, additional declines in USD/CAD could fuel the recent switch in retail sentiment to something similar to the behavior recorded earlier this year.

Despite Worsening Decline, USD/CAD Net-Longs Exceed Shorts

Reports show that 60.19% of traders are net-long on the USD/CAD, with the ratio of traders long to short at 1.51:1. The number of net-long traders jumped by 11.14% over the last 24 hours and 22.68% in the past seven days. Meanwhile, the number of net shorts dropped by 9.73% in the past 24 hours and down by 33.71% over the past seven days.

As mentioned earlier, the incoming Canadian CPI data could fuel speculation of an additional 1% interest rate hike by the BoC, which could send the USD/CAD on more declines.

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