Today, the Canadian dollar received significant support after the release of inflation data in the country. Contrary to contradictory forecasts, the consumer price index was in the "green zone", exceeding the forecast values. This fact returned confidence to the USD/CAD pair, after which the loonie returned to the bottom of the 33rd figure.
The situation is as follows in terms of numbers. On a monthly basis, inflation remained at the level of April (0.4%), while most experts predicted a decline to 0.1% (some of them did not rule out a decline in the negative area). In annual terms, the CPI jumped immediately to 2.4%. By the way, this is the strongest growth dynamics since October last year, while the indicator has consistently increased for the fourth month in a row.
Especially surprised by core inflation. In monthly terms, the index came out of the negative area and reached 0.4% (the best result since February of this year). But on an annualized basis, the indicator shot immediately to 2.1%, with a forecast of growth to 1.2% (the previous value of the indicator is 1.5%). It is worth noting that the last time such an increase was recorded was in August 2016.
The structure of the indicators suggests that prices rose for all major components, whereas in six categories, growth accelerated. In particular, the cost of durable goods increased by 2.5%, for food products - by 3.5%, for transport - by 3.1%. In general, today's results have exceeded the most courageous and optimistic forecasts of experts. Let me remind you that in the last quarterly report of the Canadian central bank, which was published in April, the regulator raised its forecast for consumer inflation from 1.7% to 1.9%. Thus, the figures published today significantly exceeded not only the forecasts of experts, but also the forecasts of the central bank.
In many ways, these results offset the fears of traders that the Bank of Canada would stand on a par with the RBA, the RBNZ, the Fed and the ECB, whose members either began to ease monetary policy or expressed readiness for such a step. It should be noted here that the next meeting of the Canadian regulator will take place on July 10, therefore members of the central bank of Canada can watch the events taking place "from the podium" - in contrast to the US Fed, whose members are forced to orient market participants now, in a contradictory fundamental background.
But the fundamental picture is indeed controversial - including for the Canadian dollar. Donald Trump, who announced yesterday a meeting with his colleague from China, had a significant impact on the mood of traders. Demand for defensive assets decreased, and risky and commodity currencies to some extent resumed growth. Xi Jinping, commenting on the telephone conversation with Trump, noted that the escalation of the trade conflict "is not in the interests of both parties," so the parties will hold preliminary talks before the G-20 summit.
The decline in anti-risk sentiment coincided with the growth of the oil market: a barrel of Brent crude traded within the range of 60-62 dollars, and today oil traders even tried to overcome the upper limit of the price range. At the same time, WTI futures on electronic trading on the New York Mercantile Exchange rose by 3.9% to $54 per barrel. Actually, the growth of the oil market is also based on optimism about the resumption of trade negotiations between the United States and China. After a multi-week period of whipping up the situation, an unexpected "thaw" in the relations of the two superpowers has a strong influence on both the foreign exchange market and the commodity market.
But in the context of the USD/CAD pair, this "thaw" plays a slightly different role. After all, the renewed contacts between Beijing and Washington at the level of top state officials can also affect the rhetoric of the US regulator. Here it is worth remembering that until yesterday, the market was 80-85% certain of the Fed rate cut at the July meeting. If the Fed maintains the status quo and/or takes a more "hawkish" position than traders expect, the US dollar can fire across the entire market, including paired with Canadian currency. It is this factor that stopped USD/CAD bears at 1.3333 (Tenkan-sen line on the daily chart), interrupting the downward impulse.
Thus, the further dynamics of the loonie depend on the position of the US Federal Reserve. If Jerome Powell decides to follow general market expectations, the greenback will weaken against a basket of major currencies and the USD/CAD pair can move further down to the level of 1.3250 (the bottom line of the Bollinger Bands indicator on the daily chart), which acts as a support level. Otherwise, we expect a price rebound at least to the upper boundary of the Kumo cloud on D1 - a price of 1.3420.
