USD/CAD has been trading with no clear direction over the past month and a half, moving between support at 1.3280 and resistance at 1.3530. However, in recent days, the pair has gained momentum and accelerated to the upside, testing the top of the range but failing to decisively break out.
The upcoming sessions could potentially trigger volatility and impact the near-term price action for the currency pair; therefore, it is essential to keep a close eye on the economic calendar. Canada’s inflation report on Tuesday and the FOMC minutes on Wednesday are two significant events that could trigger wild swings in the market.
The Bank of Canada increased its interest rates by 25 basis points (bps) to 4.50% at its January meeting, signaling that its aggressive tightening campaign has ended. However, policymakers may recalibrate their outlook if inflation remains stubbornly high, prompting traders to carefully scrutinize incoming data.
The consensus estimate for Canadian January CPI increased by 0.7% month-over-month, raising the annual rate to 6.1% from 6.3% previously, indicating a small but welcome directional improvement. That said, an accurate or below-forecast reading should spell bearish momentum for the Loonie. However, an upside surprise could lead investors to discount further Bank of Canada hikes, providing some support.
Despite the potential for positive data for the Canadian dollar, the market is now focusing more on the U.S. side of the equation. Increased bets suggest that the U.S. central bank’s terminal rate will settle higher than initially anticipated due to sticky inflation. This sentiment is now being dictated by the Federal Reserve’s roadmap considerations, shifting the focus of the market towards the U.S. dollar.
USD/CAD Is in Consolidation
In conclusion, the USD/CAD is currently in a consolidation phase with the potential to break out. The upcoming Canadian inflation report and FOMC minutes could trigger volatile swings in the market, but the market is currently focusing more on the U.S. side of the equation, driven by the Fed’s roadmap considerations. Therefore, traders should be cautious and monitor the economic calendar closely to stay on top of market-moving events.
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