CAD calm ahead of inflation and FOMC

The Canadian dollar is almost unchanged on Wednesday. In the European session, USD/CAD is trading at 1.2181, down 0.05% on the day.

This tranquil scene could change drastically later in the day, with two key events on the calendar. Canada will release May inflation (12:30 GMT). This will be followed by the FOMC policy meeting (15:00 GMT). Either of these events is a potential market-movers which could shake up the sleepy Canadian dollar.

Inflation has been the buzz word recent weeks, as the reopening of major economies has led to stronger economic activity and higher inflation. This has been the case in the US over the past two months, and earlier today, UK CPI jumped to 2.1%, above the BoE’s target of 2 per cent. Higher inflation represents a headache for central banks, which may have to tighten policy if higher inflation proves to be sustainable and not merely transient.

In Canada, inflation is also running high. May CPI is expected to rise 0.4% CPI and 3.5% y/y, well above the BoC’s target of 2%. The central bank has already tapered its QE programme, and if CPI remains at high levels, it may have to consider a rate hike to rein in inflation.

The CPI inflation release will be followed by the FOMC policy meeting. Policymakers are not expected to make any adjustments to monetary policy, but the strong recovery and higher inflation have raised expectations that the Fed is becoming open to the idea of tapering its massive stimulus programme. The messsage from the FOMC could have a significant impact on the US dollar. If the Fed adheres to its ultra-loose stance, the greenback could retreat. However, any acknowledgments that taper talks could be on the table would likely lift USD/CAD past the 1.22 level.

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       USD/CAD Technical

• There is resistance at 1.2210. The next resistance line is at 1.2253
• USD/CAD has support at 1.2090. Below, there is support at 1.2013

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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