Canada's Inflation Rises; Rate Cut Delayed Amid Economic Variances

Canada experienced a rise in its annual inflation rate in December, meeting economists' expectations. The rate increased from 3.1% in November to 3.4%. Core inflation measure, also accelerated, reaching 3.6%. Higher gasoline prices were a key driver, along with increased costs for airfares, passenger vehicles, and rent. Despite the central bank's anticipation of reaching its inflation target by the end of 2025, Governor Tiff Macklem suggested it should be closer to the target by the end of the current year.

The Bank of Canada is expected to delay a key interest rate cut until at least June due to persistent inflationary pressures. The economy, despite slowing, has not witnessed uniform progress, and consumer prices exceeded the central bank's 1-3% target. High wages and elevated core inflation further weakened the case for an early rate cut, as Governor Macklem emphasized the need for sustained downward momentum in core inflation for any policy shift.

A Reuters poll indicated that Canadian businesses foresee a decline in order books due to interest rate impacts on consumer spending. Consumer sentiment reveals an increased anticipation of a recession, with 61% of consumers expecting one in the coming year. Meanwhile, the growth outlook for Canada's economy, as per the poll, paints a relatively positive picture, with economic activity expected to have grown by 0.6% in the last quarter of the year.

Retail sales in November experienced an unexpected month-on-month decline, primarily driven by a slowdown in food and beverage sales. However, preliminary estimates for December suggested a potential rebound during the holiday season. The housing market ended the year on a positive note, with increased home sales in December, and housing starts rose by 18% in the same month.

The U.S. dollar slightly declined on Friday after five consecutive sessions of gains, but it is poised for a weekly climb. Economic data and Federal Reserve comments reduced expectations for immediate interest rate cuts. Traders now target May for a potential rate cut, emphasizing a cautious approach by the Fed.

Positive economic indicators include a significant drop in new unemployment benefit claims to the lowest level in 1-1/2 years, suggesting robust job growth in January. This, along with strong December retail sales, makes a March interest rate cut less likely. U.S. consumer sentiment hit a 2-1/2 year high in January, reflecting optimism about inflation and household incomes. However, Americans are warming up to the economy's resilience, with low inflation expectations for the next 12 months, which bodes well for the Federal Reserve. Nevertheless, it is anticipated that the USD/CAD currency pair will experience a fluctuating pattern within a wide range consistently due to the limited disparity in returns between the two countries.

Data for Technical Analysis (1H) CFD USD/CAD

Resistance : 1.3430, 1.3433, 1.3436

Support : 1.3424, 1.3421, 1.3418

1H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.3419 - 1.3424 is touched, but the support at 1.3424 cannot be broken, the TP may be set around 1.3433 and the SL around 1.3417, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3430 - 1.3435, TP may be set around 1.3442 and SL around 1.3422, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3430 - 1.3435 is touched, but the resistance 1.3430 cannot be broken, the TP may be set around 1.3424 and the SL around 1.3437, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3419 - 1.3424, TP may be set around 1.3415 and SL around 1.3432, or up to the risk appetite.       

Pivot Points Jan 22, 2024 02:14AM GMT