USD/CAD heading to 1.32?

2023年1月27日

Much of the attention was on core PCE price index today, providing traders and Fed officials one last look at inflation data before next week’s rate decision by the FOMC. Well, as it turned out, the data was bang in line with the expectations on all fronts, meaning traders had no reason to aggressively buy or sell the dollar. If anything, the dollar weakened a little bit as some had probably positioned themselves for a positive surprise.

The in-line core PCE data means the path of least resistance is likely to remain to the downside for the dollar heading into next week’s FOMC decision when policymakers are expected to slow down the pace of hiking further. A 25-basis point rate hike is expected on Wednesday.

Among the dollar pairs to watch is the USD/CAD, after the BoC earlier this week implied that they will pause their rate hikes. Despite that, the risk-sensitive CAD strengthened, finding renewed support from rising oil prices and firmer tone across risk assets, with equity indices rallying.

With the USD/CAD breaking below the bullish trend line and key support around 1.3345/50 area, we could see a drop towards the 200-day average next at just above the 1.32 handle next.

By Fawad Razaqzada