Canadian dollar breaks below 1.25

Canadian dollar climbs despite high US inflation

The Canadian dollar has extended its gains for a third consecutive day. USD/CAD has dropped 0.15% on the day, enough to push the pair below the 1.25 level, which has psychological significance, for the first time since mid-November.

It has been an excellent week for the Canadian dollar, which has gained 1.27%. These strong gains are more a case of greenback weakness rather than loonie strength, as the US dollar has retreated broadly against the major currencies this week. Investors continue to be in risk-on mode, shrugging off a soft nonfarm payrolls report and a sizzling CPI reading of 7.0% y/y. One could make a cogent argument that investors will not sit idly with arms folded if inflation continues to climb, and risk appetite could dissipate and send the US dollar higher. In the meantime, the markets are buying what Jerome Powell is selling, which is that inflation should ease during the year, but the Fed stands ready to raise rates as much as needed to curb inflation.

Powell’s testimony before Congress earlier this week soothed the markets and kept risk sentiment intact, even though the Fed has taken a hawkish pivot as it moves towards policy normalization. The Fed has doubled its tapering and will wrap up its bond purchase programme in March before embarking on a series of rate hikes. There is a strong likelihood that the Fed could begin hiking in March and there is talk of up to four rate hikes in 2022. The Fed is on the verge of tightening policy and time will tell if risk sentiment remains strong or will a hawkish Fed boost the US dollar.

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USD/CAD Technical

    • USD/CAD faces resistance at 1.2762. Above, there is resistance at 1.2879
    • There are support levels at 1.2579 and 1.2513

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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