USD/CAD nears key support as fears of Canada hyperinflation rise

The USD/CAD pair is hovering near the lowest level since September 2017 as traders reflect on the strong Canadian consumer inflation data and the relatively hawkish FOMC minutes. The pair is trading at 1.2112, which is slightly above this month’s low of 1.2013.

Canada inflation

There are worries of hyperinflation in Canada. In a statement yesterday, the country’s statistics agency said that consumer prices surged in April as the recovery continued. Precisely, the headline CPI rose by 0.5% in April on a month-on-month basis. This led to a year-on-year increase of 3.4%, the highest level in almost a decade. The figure was higher than the median estimate of 3.2% and the previous increase of 3.2%. 

In the same period, core CPI that excludes the volatile food and energy prices, increased by 0.5% and by 2.3% year-on-year. According to Canada Statistics, this increase was mostly because of energy costs. Gasoline prices rose by 62.5% year on year since the price of crude oil is hovering near its highest level in years. 

Other commodity prices like lumber and copper have also surged recently. This has made many products like housing more expensive. Later Thursday, the USD/CAD will react to a statement by Tiff Macklem, the BOC governor.

The USD/CAD pair is also reacting to a relatively hawkish statement by the Federal Reserve. The bank’s minutes of the April meeting showed that some members started to talk of future tightening. This was unlike the past meetings when the officials insisted on status quo. Notably, this meeting happened before the weak non-farm payroll data and the strong consumer inflation numbers.

On Thursday, the USD/CAD will react to the new initial and continuing jobless claims numbers from the United States. Analysts expect the data to show that number of claims kept falling as the labour market tightens.

USD/CAD technical outlook

The weekly chart shows that the USD/CAD pair has been under intense pressure in the past few months. It has declined by more than 8% from its highest point in 2020. The pair has also declined below the 25-day and 50-day moving averages. Notably, the pair is attempting to move below the important support level at 1.2056, which was the lowest level on September 14. Therefore, the pair will likely have a pullback and then drop below this support in the near term.