USDCAD rises as US economic indicators present mixed signals and Canadian inflation slows

USDCAD Analysis

Performance after Wednesday
Period	Pct	Chg	Momentum
Wednesday	0.94%	134.3 Pips
Week to-date	1.54%	218.4 Pips
December	3.12%	437.1 Pips

Upcoming key events (London Time)

Thu 01:30 PM USD GDP annual rate
Fri 01:30 PM USD PCE Price Index, excluding food and energy (12-mth)

What happened lately

Recently, the United States experienced several key economic developments. The Federal Reserve announced a decrease in the Fed Interest Rate to 4.5% from the previous 4.75%, signaling a more cautious approach for potential future rate cuts. The interest rate projections exhibit a mixed outlook: the 3rd year and longer-term projections increased to 3.1% and 3%, respectively, while other rates for the 1st and 2nd years are forecasted at 3.9% and 3.4%, suggesting variability in economic expectations. U.S. housing data showed a decline in housing starts to 1.289 million, though building permits rose to 1.505 million, indicating mixed signals in the housing market. Industrial production improved slightly in November, moving to -0.1% from the previous -0.3%. Moreover, U.S. monthly retail trade saw an increase to 0.7% in November, indicating consumer spending remains strong.

Canada’s economic indicators reveal a downward trend in inflation. The country’s CPI inflation rate dropped to 1.9%, and the monthly CPI Inflation Rate reached 0% in November, down from 0.4% in October. Furthermore, Canada’s Core Inflation, as reported by the Bank of Canada, decreased to 1.6% over 12 months, and the core monthly inflation rate turned negative at -0.1%. This data reflects a slowdown in inflationary pressures, suggesting that the economy is cooling down.

The drop in the U.S. Fed Interest Rate could potentially weaken the U.S. dollar, resulting in a relative strengthening of the Canadian dollar as seen in the recent appreciation of the USDCAD by 0.94% to 1.44443. With mixed U.S. economic indicators, the currency pair may fluctuate, depending on further economic news. The weaker inflation in Canada, as suggested by declining CPI and Core Inflation rates, could also strengthen the Canadian dollar if it leads to the Bank of Canada adjusting its monetary policy to ensure economic stability. As such, any news about U.S. GDP growth or inflation metrics could further sway the USDCAD pair based on how it affects investors’ perceptions of economic health and monetary policy direction in both countries.

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What can we expect from USDCAD today?

USDCAD on Wednesday rose 0.94% to 1.44443. Price is above 9-Day EMA while Stochastic is rising.

Updated daily direction for USDCAD looks bullish as the pair ended higher after Wednesday trading session.

Looking ahead for the day, immediate upside resistance level is R1 at 1.44959 with break above could target R2 at 1.45474 or figure level area. While towards the downside, we are looking at daily low of 1.43000 as an important support. Break below this level could weaken the current bullish momentum. A break above 1.44495 may suggest continuation after recent positive movement.

For the week to-date, take note that USDCAD is bullish as the pair continued to trade higher and is up by 1.54% over the past few days.

Key levels to watch out:

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