Having reached a five-month low earlier this week, the USD/CAD pair continues to climb back above the 50-day simple moving average. While the US Dollar’s support for risk appetite remains in place, the pair may struggle to hold above a key resistance level. A break below 1.3400 may trigger a bearish trend. However, a close above 1.3540 could bring the 1.3630 region back into play.
A stronger than expected CPI report could boost the US Dollar and USD/CAD pair. A weaker CPI report could be a headwind for the Greenback. Similarly, a weaker US retail sales report could set the stage for another stock market selloff. If inflationary pressures remain subdued in October, the Federal Reserve may have to reconsider its approach to combating inflation. This could have a negative impact on dollar-denominated commodities like crude oil. The upcoming FOMC meeting minutes may also impact the pair.
The United States released its monthly jobs report on Friday. This month’s report showed better-than-expected job gains, confirming Fed Chair Powell’s forecast that the Fed would continue to tighten monetary policy. This month’s unemployment rate was slightly lower than expected, and the increase in wages was a surprise. This added credibility to Powell’s forecast of a higher peak rate.
The monthly CPI report for September showed a weaker than expected increase, but the core CPI increased by 0.6%. This is much stronger than the headline CPI, which showed an increase of 0.4%. The overall CPI figure was also weaker, falling from 8.3% to 8.2%. This could indicate that the US economy is growing slowly and that higher borrowing costs are discouraging Americans from spending.
US Treasury bond yields were up in early trading on Monday. This is due to expectations that the Fed may announce another rate hike at its next meeting. In addition to the monthly jobs report, the Fed will also announce its inflation estimates for October. While the headline inflation report showed a slight rise, the core CPI and overall CPI are expected to see a drop. Moreover, the year-over-year CPI is projected to drop from 8.2% to 7.9%.
The Reserve Bank of Australia released its Meeting Minutes on Tuesday, which also supported the bearish position of AUD/USD. RBA Governor Philip Lowe indicated that the central bank would continue to support its restrictive monetary policy. He also warned of a possible slowdown in inflation from CY2023. This could add strength to the bearish bias.
The FOMC will release its minutes at 6:00 pm GMT. The minutes will contain the Fed’s forward guidance, including its inflation estimates and policy biases. This report may also boost bets on a smaller Fed rate hike in December. The CPI report is expected to show a slight drop in October, but the year-over-year figure is projected to decline from 8.2% to 7.9%.
A stronger than expected CPI report for October could boost the US Dollar and USD/CAD. If the core CPI and overall CPI show a slowdown, the Greenback could get a boost. On the other hand, an uptick in the headline CPI could depress the dollar-denominated commodities like crude and natural gas.