USD/CAD Exchange Rate Prediction – The Dollar Eases Despite Robust Inflation

Key Insights

• The dollar eased, giving back recent gains.
• Treasury yields pulled back due despite strong inflation data.
• Oil prices jumped, helping to buoy the Loonie.

USD/CAD moved lower on Wednesday as the dollar eased against most major currencies. Benchmark yields dropped today despite a stronger than expected CPI report that showed month-over-month gains that were stronger than expected. Oil prices moved higher following Wednesday’s inventory report, which showed strong gasoline demand.

The U.S. Labor Department released April CPI on Wednesday. The headline CPI came in at 8.3%, slightly less than March but more than the 8.1% expected by economists. The report also showed that core CPI, excluding food and energy, increased by 6.2% year over year, higher than expected. The month-over-month gains also were higher than expectations.

The BLS reported that April inflatino rose  0.3% on headline CPI versus the 0.2% estimate and a 0.6% increase for core, against a 0.4% gain outlook.

Technical Analysis

The USD/CAD pulled back on Tuesday after breaking out to fresh highs. The exchange rate pulled back to support near former resistance at the December highs at 1.2964. Resistance is seen near the horizontal trend line near 1.30. The 20-day moving average crossed above the 50-day moving average, which means a medium-term uptrend is now in place.

Short-term momentum turns negative as the fast stochastic might have a crossover sell signal. The exchange rate is overbought as the fast stochastic is printing a reading of 84, above the overbought trigger level of 80. Medium-term momentum is positive as the MACD line generated a crossover buy signal.

This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day MA of the MACD line). The trajectory of the MACD is in positive territory, which reflects an upward trend in price movement.