US Inflation Information to Set the Tone for USD/CAD

USD/CAD OUTLOOK: NEUTRAL TO BEARISH

USD/CAD falls modestly on the week, with the Canadian greenback receiving some help from the robust rally in oil costsThe Loonie might mount a good restoration if market sentiment stabilizesAll eyes can be on the U.S. inflation report subsequent week

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USD/CAD completed the week reasonably decrease, down about 0.6% after gaining for the earlier three weeks. The Canadian greenback appeared to have benefited from the highly effective oil worth rally recorded over the previous a number of classes after OPEC+ determined to chop its manufacturing quota, however bearish market tone seemingly capped its advance.

Trying forward, the near-term outlook for USD/CAD is considerably impartial to barely damaging. Whereas the strong U.S. labor market ought to maintain the Ate up a hawkish path, Canada’s fundamentals are additionally holding up effectively to resist extra tightening, that means that financial coverage shouldn’t be a serious bullish catalyst for the buck.

Nevertheless, one issue that would compromise the above thesis is sentiment. If the temper, which has been cautious of late, worsens, the buck might resume its advance, with the transfer powered by safe-haven flows. For merchants simply beginning out, it is very important notice that the U.S. greenback tends to commerce as a risk-off proxy in occasions of heightened uncertainty.

Associated: US Greenback Bolstered by Sustained Hawkish Fed Communicate

Within the occasion market circumstances enhance after excessive promoting exercise on Wall Road earlier than the weekend, the Canadian greenback is effectively positioned to benefit from oil energy. Crude oil, which is one in every of Canada’s fundamental exports, has soared roughly 20% because the September low, boosting the nation’s phrases of commerce. In a secure surroundings, this must be a bullish driver for the Loonie.

Turning our consideration to the financial calendar, the September U.S. inflation report due out on Thursday is poised to steal the limelight subsequent week. Annual CPI is anticipated to chill to eight.1% from August’s 8.3%, however the core gauge is seen accelerating to six.5% from 6.3%. In any case, the decrease the outcomes, the higher for the Canadian greenback as smooth numbers could immediate the Fed to relent on a few of its hawkishness, on the margin.

Conversely, if inflation knowledge surprises to the upside, because it did final month, all bets are off. On this state of affairs, danger belongings might dump throughout the board as merchants place for an ultra-aggressive FOMC, weighing on high-beta currencies such because the Canadian greenback.

USD/CAD WEEKLY CHART

USD/CAD chart ready utilizing TradingView

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—Written by Diego Colman, Market Strategist for DailyFX