Canadian Inflation Dips, BoC Under Pressure

In Canada, the annual inflation rate for October decreased more than anticipated, reaching 3.1%, while core inflation measures registered their lowest levels in approximately two years. The Bank of Canada (BoC), which targets a 2% annual inflation rate, could face increasing pressure to lower its key policy rate from its current 22-year high of 5.00%. Despite holding rates steady in the last two meetings, the BoC remains open to future hikes but anticipates inflation to hover around 3.5% until mid-2024 before reaching the 2% target in late 2025.

The deceleration in October's annual inflation rate in Canada was influenced by a 7.8% decline in gasoline prices, benefiting from a comparison with a surge in prices in October 2022. Grocery prices also cooled to their slowest pace since November 2021.

While goods inflation slowed to 1.6%, services prices accelerated to 4.6%, the largest increase since May. The upcoming rate decision on December 6 by the BoC, following the release of third-quarter GDP data, is significant as there are expectations that the Canadian economy may slip into a shallow recession.

Meanwhile, the U.S. dollar faced a decline against a basket of currencies on news of steady U.S. business activity in November. Private sector employment declined as anticipated, reflecting expectations of a fourth-quarter economic slowdown, the U.S. Federal Reserve is seen as unlikely to raise interest rates further, potentially considering cuts in the coming year.

S&P Global reported that the U.S. Composite PMI Output Index remained unchanged in November, indicating stable private sector activity. However, the flash manufacturing PMI dropped to 49.4, and the flash services sector PMI edged up to 50.8. Economists anticipate a considerable moderation in overall economic activity in the fourth quarter due to the lagged effects of previous interest rate hikes.

With the U.S. economy growing at a 4.9% annualized rate in the third quarter, growth estimates for the October-December quarter are below a 2% pace. The S&P Global survey's employment index dropped to 49.7, indicating the first contraction in private sector employment since June 2020, with businesses citing muted demand conditions and elevated cost pressures as reasons for layoffs.

Looking ahead, global investors are closely monitoring inflation data, OPEC+ meetings on oil output cuts, and economic data from China. In the U.S., the focus is on the upcoming inflation report, with markets hoping for indications that could support the case for the end of Federal Reserve rate hikes. The Fed's preferred inflation gauge, the personal consumption expenditures price index, is expected to have risen 0.1% in November, while the core reading is anticipated to have increased by 3.5% year-over-year.

Other economic data during the week includes a consumer confidence index for November, the first revision of third-quarter GDP, figures on new home sales for October, the weekly report on jobless claims, and the Fed's Beige Book. Hence, it could lead to continued downward pressure on the Canadian dollar, causing it to fluctuate within the upper range or weaken slightly against the US dollar until the year's conclusion.

Data for Technical Analysis (5H) CFD USD/CAD

Resistance : 1.3653, 1.3659, 1.3670

Support : 1.3631, 1.3625, 1.3614

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.3621 - 1.3631 is touched, but the support at 1.3631 cannot be broken, the TP may be set around 1.3660 and the SL around 1.3616, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3653 - 1.3663, TP may be set around 1.3675 and SL around 1.3626, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3653 - 1.3663 is touched, but the resistance 1.3653 cannot be broken, the TP may be set around 1.3631 and the SL around 1.3668, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3621 - 1.3631, TP may be set around 1.3610 and SL around 1.3658, or up to the risk appetite.       

Pivot Points Nov 27, 2023 03:10AM GMT

Sources: Investing 1, Investing 2