October 19, 2021 14:29:46
We get the latest Canada CPI figures tomorrow after the Bank of Canada Business Outlook Survey showed a mixed picture yesterday. Record business confidence and rising investment intentions were offset by increasing price pressures and labour shortages.
Wednesday’s inflation numbers should show a headline rate above 4%, while the average of the three main core measures could increase again. This shows inflation is not narrowly driven or solely led by reopening effects. The data will reinforce the view that the BoC are on the right path to ending QE by year end. This should be a forerunner to interest rate rises in 2022.
A better-than-expected print could add support to CAD which is enjoying October so far, helped by rocketing oil prices.
Loonie lingers at Fib level
USD/CAD dropped to three-month lows earlier today before rebounding on dollar buying. After topping out again near 1.29 last month, the pair broke down through trendline support at the beginning of October. Since then, we’ve seen a series of lower highs and lower lows in a descending bearish channel.
Prices are now chopping around key USD support at the 61.8% Fib level of the June to August move at 1.2367. Momentum indicators are also taking a well-earned breather. If bears can consolidate around here, the loonie is likely to continue lower towards the low 1.22 zone and the next Fib retrace level (76.4%) at 1.2230. A stronger correction will see resistance at 1.2422 and then 1.2477 (50% retrace).
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