The USDCAD currency pair started Monday with an attempt to rebound after last week's strong collapse. However, all of the bulls' achievements came to naught at yesterday's trading session. Quotes updated their 4 month lows again, coming even closer to the level of 1.33. At this rate, this mark will be overcome in the next few days. Both technical and fundamental factors are in favor of further decline in USDCAD.
Yesterday's inflation data for November contributed to a new surge in demand for the Canadian dollar. Despite analysts' forecasts, who expected the overall price growth in Canada to slow down from 3.1% to 2.9%, the indicator remained at the same level. Moreover, core inflation even accelerated slightly, from 2.7% to 2.8%. On a monthly basis, the figures were also worse than expected.
Royce Mendes, head of macro strategy at Desjardins, notes less progress against rising prices than Canadian authorities would like to see. Derek Holt of Scotiabank suggested that the latest inflation statistics are in favor of maintaining the current level of the Bank of Canada's key rate or even another increase. He warns the regulator's officials against hasty easing of monetary policy, considering such a decision a very serious mistake.
The consensus forecast of market participants after yesterday's data has undergone changes. Now the start of the cycle of interest rate cuts in Canada is expected in April, not in March 2024. In his latest speech, Bank of Canada Governor Tiff Maclem noted that the regulator will consider lowering rates only when it is confident that inflation is moving steadily toward the 2% target. According to him, such a decision requires a steady slowdown in the rate of price growth over a horizon of at least 3 months.
On the daily chart of USDCAD the RSI indicator continues to show the prevailing downward trend. At the same time, the oversold condition has not been reached yet, which means that the potential for downward movement still remains. The nearest target is 1.33.
Consider the following trading strategy:
Sell USDCAD at the current price. Take profit - 1.33. Stop loss - 1.34.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
