With no blockbuster in terms of the US CPI and FOMC minutes, the market likely took the opportunity to take some profit on USD longs. Economists at OCBC Bank expect the USD/CAD pair to extend its slump towards the 1.2370750 region.

USD directionality may turn soggy

“The US CPI entering slightly firmer than expected gave the USD a brief boost, but it came under selling pressure soon after. The FOMC minutes did not reveal new insights beyond the statement and Powell press-con. The market was reminded of a year-end start to tapering, and at a pace that will conclude in mid-2022.”

“ The CAD’s gain against the USD was relatively muted, but it kept the USD/CAD on a downside bias towards 1.2350/70 as the next target. Short term implied valuations also point to more downside.”

“The USD/CAD is our preferred expression of near-term cyclicals strength against the USD.”