Cdn. dollar dips after FOMC minutes

Canada’s inflation hits 30-year high

Inflation continues to rise and hit a new 30-year high in January. Headline inflation jumped 5.1% y/y, up from 4.8% a month earlier and above the consensus of 4.8%. Core CPI rose 4.3%, up from 4.0% and above the forecast of 3.5%.

The inflation report will no doubt increase the pressure on the Bank of  Canada to raise rates at its meeting on March 2nd, with the markets pricing in the likelihood of a March hike at 100%. Investors have priced in as many as seven rate hikes this year, as the BoC is expected to be aggressive in order to wrestle down inflation, which shows no signs of easing. Energy prices are pointing upwards, with oil expected to hit USD 100 per barrel shortly. Supply chain disruptions and a lack of workers will only exacerbate inflationary pressures, which have been broad-based.

Fed to start rate rate-hike cycle

There were no surprises from the FOMC minutes, resulting in a muted market reaction. Officials indicated that interest rates are coming soon, strongly hinting that lift-off will take place in March. As well, the Fed plans a significant reduction in the balance sheet, which has ballooned to nine trillion dollars as a result of aggressive bond-buying in an effort to stimulate growth during the Covid pandemic. The Fed will end its QE programme in March as scheduled, although some members at the Fed meeting wanted to wind up the program earlier.

The Russia/Ukraine border remains extremely tense, although fears of a Wednesday invasion proved to be false.    The White House is disputing the Russian claim that it has moved forces away from the border and there were reports earlier today that Ukrainian forces had shelled a region that is Ukrainian territory but controlled by Russian separatists. This report has dampened risk appetite and pushed the US dollar slightly higher.

.

USD/CAD Technical

  • USD/CAD faces resistance at 1.2781 and 1.2828
  •  1.2661 is under pressure in support and could be tested during the day. Below, there is support at 1.2588

Content 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 Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Kenny Fisher

Kenny Fisher

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