**USD/CAD Surges to Two-Month Peak Amid Broader USD Strength and Weak Canadian CPI Data**
*Based on original analysis by ActionForex.com, expanded and updated with additional data and analysis from other Forex and economic sources.*
The USD/CAD currency pair has recently climbed to a two-month high amidst a combination of bullish US dollar momentum, weakening economic datapoints from Canada, and shifting global risk sentiment. This rise underscores a changing fundamental and technical landscape for the currency pair as investors recalibrate expectations around central bank policy paths and differing macroeconomic data from the US and Canada.
This article provides a deep-dive into the factors currently driving the movement in USD/CAD, technical assessment, and key upcoming events that could further influence the trajectory of the pair.
## Current Performance Overview
USD/CAD surged to a two-month high, reaching 1.3738 during early trading this week. The pair extended its bullish momentum, firmly breaking above prior resistance levels that had capped gains over the past several weeks.
This price action places the pair back on a solid uptrend following a period of consolidation. With the US dollar gaining strength across the board, thanks to resilient economic indicators and hawkish Federal Reserve expectations, the Canadian dollar is simultaneously encountering pressure due to weak inflation figures and expectations of slower future growth.
## Key Drivers of the Upward Move
The movement in USD/CAD reflects a variety of fundamental and technical dynamics unfolding in both the US and Canadian economies.
### 1. Weak Canadian CPI Data
Statistics Canada reported that annual inflation eased more than expected in April 2024. Headline inflation slowed to 2.7 percent, down from the 2.9 percent year-over-year print in March, while core inflation measures also moderated.
– The Bank of Canada’s closely watched CPI-trim and CPI-median declined to 3.1 percent and 2.8 percent, respectively.
– Markets interpreted these results as reducing the probability of further Bank of Canada hawkishness, with future rate cuts more likely to occur sooner rather than later.
– Rate-swaps suggest an increase in market-implied odds of a BOC rate cut as early as July.
The soft inflation data has put downward pressure on the Canadian dollar, increasing its vulnerability against stronger peers like the USD.
### 2. Fed’s Hawkish Tone Supports USD
Federal Reserve officials have reinforced a relatively hawkish stance, making it clear that rate hikes are off the table for now but rate cuts are also not imminent.
– Minutes from the most recent Federal Open Market Committee (FOMC) meeting showed that officials remain concerned about upside inflation risks and are not fully satisfied with the current trajectory.
– Fed Chair Jerome Powell recently asserted that current policy remains restrictive and that the central bank is willing to keep rates higher for longer until inflation returns convincingly to target levels.
– The strength of recent US economic indicators adds to the argument that rate cuts are not urgent.
This stance contrasts sharply with the more dovish shift seen from the Bank of Canada, which appears to be preparing for earlier cuts as Canadian inflation cools.
### 3. Oil Prices and CAD Correlation
Oil prices have weakened somewhat in tandem with global risk-off sentiment, pressuring commodity-linked currencies like the CAD.
– West Texas Intermediate (WTI) Crude fell below the $78/barrel level on concerns over sluggish demand growth and rising US inventories.
– Canada, as a major oil exporter, sees its currency tightly correlated to oil’s performance. Falling oil prices diminish the value of Canadian export revenues, leading to softness in the loonie.
A soft energy market adds another bearish driver to the Canadian dollar, further supporting upward moves in USD/CAD.
### 4. Divergence in Employment and Growth Metrics
Recent economic data reveals a widening gap between US and Canadian labor markets and GDP growth outlooks:
– April US Non-Farm Payrolls came in above expectations at +253,000 jobs, underscoring labor market
Read more on USD/CAD trading.