11 Dec 2024

USD/CAD is currently trading within a narrow range as market participants await the release of US inflation data and the Bank of Canada's (BoC) policy announcement. It is anticipated that the core Consumer Price Index (CPI) in the US has shown consistent growth in November. Furthermore, the BoC is projected to implement a 50 basis point reduction in interest rates, bringing them down to 3.25%.

During the European trading session on Wednesday, the USD/CAD pair is consolidating just below the significant resistance level of 1.4200. The Loonie pair is moving sideways as traders look forward to the upcoming US CPI data for November and the monetary policy decision from the BoC, both of which are set to be released during the North American session.

In advance of the US inflation figures, the US Dollar (USD) has returned to its weekly high, marking its fourth consecutive day of gains, with the US Dollar Index (DXY) approaching 106.70. Market sentiment remains somewhat cautious, as the inflation data is expected to impact expectations regarding the Federal Reserve's (Fed) potential interest rate decisions in the upcoming policy meeting on December 18.

Monthly and annual headline inflation is projected to have increased by 0.3% and 2.7%, respectively, surpassing previous figures. The core Consumer Price Index (CPI), which omits the fluctuating prices of food and energy, is anticipated to have risen consistently by 0.3% on a monthly basis and 3.3% year-over-year.

Indicators of a deceleration in inflationary pressures may enhance expectations for a dovish stance from the Federal Reserve. Conversely, stronger-than-expected data could undermine these expectations. A Reuters survey indicates that 90% of economists foresee a 25-basis point (bps) reduction in interest rates by the Fed in the upcoming week.

In parallel, the Canadian Dollar (CAD) is likely to be affected by the Bank of Canada's (BoC) policy meeting, where a further interest rate cut of 50 bps to 3.25% is anticipated. This would mark the second consecutive substantial reduction by the BoC, following a similar cut of 50 bps in October, and the fifth reduction overall this year, bringing the total decrease to 125 bps.