USD/CAD is close to a key support level just higher than the 1.3600 level in anticipation of Canadian inflation data due tomorrow. The Canadian dollar has in recent weeks gained due to significant USD weakness and increasing WTI oil prices.
The Canadian economy has been under scrutiny over the last few months as it experienced signs of stagnation. This period saw an increase in unemployment, even though inflation has dropped to a year-over-year figure of about 2.7%, matching the year’s lowest level.
Considering the decline in retail sales and the increased unemployment rate, among other data points, the BoC will attempt to prevent an uptick in inflation as that would make matters more complicated for the Central Bank. The BoC has already cut rates by 0.5% this cycle and may reduce more if economic growth stays sluggish.
Avoiding a rise in inflation will therefore likely be a top priority for the BoC before its next meeting.
Canadian inflation data will be released tomorrow. The recent dovish stance by Fed officials has since Friday put pressure on the US Dollar, continuing into today with the DXY dropping to new lows.
Retail sales data on Friday will also be crucial, especially since the soft figures for May increased fears of a possible recession.
