USD/CAD bounces after Canadian CPI data

The USD/CAD pair experienced early declines before rebounding into an intraday high of 1.3530 after Canadian Consumer Price Index (CPI) inflation fell faster than expected. This softened the Canadian Dollar (CAD) across the board. Markets will focus on the Federal Reserve (Fed) and the Federal Open Market Committee (FOMC) as traders hope for signs the Fed will move closer to rate cuts.

Canadian CPI inflation declined to 2.9% for the year ended January, well below the forecast tick down to 3.3% from the previous period’s 3.4%. January’s MoM Canadian CPI printed unexpectedly at 0.0% versus the forecasted rebound to 0.4% from the previous month’s -0.3%. The Bank of Canada’s Consumer Price Index Core for the year through January also declined to 2.4% from 2.6%.

Investors are expecting Thursday’s Canadian Retail Sales to bounce in December, with MoM Retail Sales expected to print at 0.8% versus the previous -0.2% and Retail Sales Excluding Automobiles forecast to recover to 0.7% from -0.5%.

The key factors driving the Canadian Dollar (CAD) include the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation, and the Trade Balance. Other factors include market sentiment, whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off), and the health of the US economy as its largest trading partner.