• Prevailing mixed market mood weakens the US dollar.
  • Canadian rising inflationary pressures weigh on the USD/CAD.
  • BoC’s stance about inflations is the same as the Fed’s “transitory”.

USD/CAD is sliding during the American session, trading at 1.2646, down 0.36% at the time of the writing. Before the US stock market opened, the pair was trading around the 1.2690’s, but Canadian economic data strengthened the loonie, thus resuming the downward trend.

The market sentiment is mixed. In the US, the major equity indices are trading mixed with the Dow Jones and the S&P500 recovering some of yesterday’s losses, up 0.04% and 0.15% respectively, while the heavy-tech Nasdaq is down 0.17%. The commodity-linked currencies like the CAD, AUD and NZD are up on the back of broad US dollar weakness.

Canadian inflation rises above 4%, boosts the Canadian dollar

Earlier in the session, Statistics Canada unveiled the inflation numbers. The Consumer Price Index rose to 4.1% in August from 3.7% in July. The market was expecting it at 3.9%. Furthermore, the Bank of Canada’s Core CPI, which excludes food and energy prices, edged higher to 3.5% from 3.3% on a yearly basis, still lower than the estimate of 3.7%

The market reaction to the readings was bearish for the pair, with the USD/CAD dipping to 1.2640 on the back of a higher-than-expected reading. However, the Bank of Canada’s stance is that rising inflationary pressures are going to be transitory.

According to TD analysts: “the BoC will maintain its view that this surge is largely transitory. However, continued strength in CPI will give the BoC more reason to keep forward guidance unchanged in light of recent poor growth figures,”

In the US economic docket, the Industrial Production for August slowed down to 0.4% from 0.8% in July. The forecast was at 0.5%. The slowing down is attributed to late-month shutdowns related to Hurricane Ida in the petrochemicals sector.

On Thursday, Canada will release the Housing Starts, foreseen at 242.2K. On the US front, the Retail Sales figure, expected at -0.8%, and Initial Jobless Claims, forecasted at 339.5K, will be released at 12.30 GMT.

KEY TECHNICAL LEVELS TO WATCH