Canadian dollar declines against surging US counterpart after US CPI data

A surprising CPI inflation reading on Tuesday caught the markets off guard. This week, Canada is conspicuously absent from the economic calendar. The Canadian currency has had a mixed day in relation to the US dollar, although it has performed significantly worse.

Following a monthly increase in US Consumer Price Index (CPI) inflation, which sent the Greenback leaping across the main currency board, the Canadian dollar fell sharply against its US counterpart.

The USD/CAD surged to an eight-week high on Tuesday, hitting a near-term high of 1.3578. The pair surged over a full percent bottom-to-top on the day, easily reclaiming the 1.3500 handle.

Inflation on an annual basis was also higher than consensus in January, pushing out market hopes of a May rate cut from the Federal Reserve (Fed).

Canada is limited to low-tier announcements this week and has a very sparse showing on the economic calendar. On Thursday, they contain manufacturing sales and Canadian housing starts; on Friday, they include foreign investment data. The reporting of Canadian January housing starts is anticipated to be somewhat overshadowed by US retail sales, though. headline MoM in January, US CPI inflation increased somewhat to 0.3% from the forecast 0.2%.

The CPI for December was revised down from 0.3% to 0.2%. Compared to the prediction of 3.7%, core annualized US CPI inflation remained stable at 3.9%. Markets had anticipated a further decline to 2.9%, but the US CPI for the year ended at 3.1% compared to 3.4%.

Still tacky Market predictions of the first Fed rate drop to June or July are pushed out by US CPI inflation. Based on the data from the CME FedWatch Tool, money markets now project a 62% chance of no rate cut in May.

The US dollar is rising daily as markets retreat into the currency of safety. Talking points from Goolsbee and Barr, among other Fed officials, are scheduled for Wednesday.

US Retail Sales are expected to show -0.1% in January, down from December’s 0.6% report, on Thursday. The Michigan Consumer Sentiment Index and US Producer Price Index (PPI) numbers on Friday will cap off a data-heavy week in the US.

Although the Canadian currency trades mixed generally, it technically loses ground to the US dollar’s surge. On Tuesday, the Canadian dollar lost almost half a percent vs the pound sterling (GBP) and about three-quarters of a percent versus the US dollar. In relation to the Swiss Franc (CHF) and the New Zealand Dollar (NZD), the CAD recovered by half a percent and around a third of a percent, respectively.