#USDCAD Clears February Opening Range ahead of Canada #CPI : 18 FEB 2023

USD/CAD Outlook

USD/CAD trades above the 50-Day SMA (1.3470) after defending the monthly low (1.3263), and the exchange rate may continue to appreciate ahead of the update to Canada’s Consumer Price Index (CPI) as it pushes above the opening range for February.

USD/CAD clears February opening range ahead of Canada CPI

USD/CAD trades to a fresh monthly high (1.3538) as it extends the series of higher highs and lows from earlier this week, and the exchange rate may continue to retrace the decline from the January high (1.3685) as key data prints coming out of the US economy puts pressure on the Federal Reserve to extend its hiking cycle.

The 517K rise in US Non-Farm Payrolls (NFP) along with the stickiness in the Consumer Price Index (CPI) appears to be fueling expectations for a more restrictive policy as the CME FedWatch Tool now reflects a greater than 80% probability for a terminal Fed Funds rate of 5.25% to 5.50%, and the Greenback may outperform its Canadian counterpart over the remainder of the month as the Bank of Canada (BoC) ‘expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.’

In turn, USD/CAD may continue to trade to fresh monthly highs as the BoC is expected to sit on the sidelines at its next meeting on March 8, but fresh data prints coming out of Canada may influence the exchange rate as the economic docket is anticipated to show a rebound in Retail Sales along with sticky inflation.

The update to Canada’s CPI may put pressure on the BoC to reestablish its hiking cycle as the core rate of inflation is projected to increase to 5.5% from 5.4% per annum in December, and evidence of persistent price growth may lead to a bullish reaction in the Canadian Dollar as Governor Tiff Macklem and Co. are ‘prepared to increase the policy rate further if needed to return inflation to the 2% target.’

With that said, an uptick in Canada’s core CPI may curb the recent advance in USD/CAD, but the exchange rate may continue to carve a series of higher highs and lows as it clears the opening range for February.

Canadian Dollar Price Chart – USD/CAD Daily

• USD/CAD trades above the 50-Day SMA (1.3470) after defending monthly low (1.3263), with the exchange rate clearing the opening range for February as it carves a series of higher highs and lows.
• A break/close above 1.3630 (38.2% Fibonacci retracement) raises the scope for a run at the yearly low (1.3685), with a move above the December 2022 high (1.3705) opening up the 1.3810 (161.8% Fibonacci extension) area, which largely lines up with the November 2022 high (1.3808).
• However, failure to hold above the moving average may undermine the bullish price action, with a move below 1.3440 (23.6% Fibonacci retracement) bringing the 1.3310 (50% Fibonacci retracement) region back in focus.

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