USD/CAD prediction ahead of Canada inflation data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Nov 16, 2021
  • The USD/CAD pair has been in a bullish trend lately.
  • The rally continued after the strong American retail sales data.
  • Focus shifts to the upcoming Canada inflation numbers.

The USD/CAD pair held steady on Tuesday as the market reflect on the latest US retail sales data and the upcoming Canadian consumer inflation numbers. The pair rose to 1.2542, which was about 2.10% above the lowest level in October.

US retail sales and Canada inflation data

The USD/CAD rose because of the overall dollar strength following the latest US retail sales numbers. The data showed that the country’s retail sales rose from 0.8% in September to 1.7% in October. This increase was significantly better than the median estimate of 1.2%. Core retail sales also rose from 0.7% to 1.7%.

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These numbers were relatively surprising since prices remain high. For example, the headline inflation has jumped to the highest level in more than 31 years. 

Additional data published on Tuesday showed that the American economy is in a good place. For example, industrial production rose by 1.6% even as energy prices rallied. Similarly, manufacturing production rose by 1.2%.

Therefore, the USD/CAD pair rallied because analysts expect that the Federal Reserve will continue with the tapering process. There are higher chances that the bank will even hike interest rates in 2022.

Looking ahead, the pair will next react to the latest Canadian consumer inflation data. Economists polled by Reuters expect the data to show that the headline consumer inflation rose from 0.2% in September to 0.7% in October. This, in turn, will translate to a year-on-year increase of 4.7%. Like in the US, this inflation will be the highest it has been in years. 

As such, these numbers will likely put more pressure on the Bank of Canada to continue tightening. The BOC has become one of the most hawkish central banks in the G7.

USD/CAD technical analysis

USD/CAD

The USD/CAD pair has been in a strong bullish momentum in the past few weeks. On the four-hour chart, the pair has managed to move above the 38.2% Fibonacci retracement level. It has also risen above the 25-day and 50-day moving averages. The pair is also above the ascending trendline shown in green.

Therefore, for now, the pair will likely keep rising as bulls target the 50% retracement level at 1.2620. This view will be invalidated if the price falls below the support at 1.2500.

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