The Canadian dollar has started the new trading week in positive territory, extending the gains we saw on Friday. Currently, USD/CAD is trading at 1.2502, down 0.40% on the day.
In the US, inflation is surging, and the Fed’s message that inflation is transitory is looking more out of sync with the inflation data. October inflation numbers were red hot, with headline CPI rising to 6.2% y/y and CPI climbing to 4.6%, as both reads were the fastest pace seen since the early 1990s. A key question is how long can the Fed continue to ignore the inflation data and not take action.
The job numbers point to many unfilled openings as the demand for workers continues to outstrip supply. JOLT job openings remained high in September at 10.44 million, lower than the August read of 10.62 million but above the consensus of 10.30 million.
In addition to high inflation, inflation expectations have hit multi-year levels, climbing to 4.9% in October. Inflation expectations can translate into actual inflation and is another indication that inflation is not showing signs of cooling off anytime soon.
In Canada, Manufacturing Sales for September declined by 3.0%. Most of the decline was due to a decrease in sales of motor vehicles due to the shortage of semiconductor chips. This hampered production in Canadian auto assembly plants and the supply chain disruption will likely continue into 2022.
Canada will release CPI reports on Wednesday. As is the case in the US, inflation is soaring and has become a headache for the Bank of Canada. In September, headline inflation hit 4.4% y/y, its highest level since 2003. The BoC has signalled that it may raise rates around mid-2022, but the markets have priced in a hike for March of next year. If the CPI release beats expectations, the BoC will be under pressure to bring forward its timeline for a hike, which would give a boost to the Canadian dollar.
USD/CAD Technical
- There is support at 1.2423. Below, there is support at 1.2296
- There is resistance at 1.2641, followed by 1.2732
