USD/CAD remains steady as robust US CPI data enhances expectations for a December Fed rate hike. Strong US CPI data has bolstered anticipations for a Federal Reserve rate increase in December. The commodity-linked Canadian Dollar may face challenges as oil prices decrease in the context of increasing US crude oil inventories. USD/CAD experiences minimal movement following two consecutive days of gains, currently trading near 1.4250 during the Asian trading session on Friday. However, the pair may appreciate as the US Dollar could receive support from persistent inflation concerns and expectations of higher interest rates. Traders are poised to glean additional insights from the US October Producer Price Index report scheduled for release later on Friday.
Stronger-than-anticipated US Consumer Price Index inflation data published earlier this week has bolstered expectations for a Federal Reserve rate increase in December. Fed Governor Christopher Waller indicated that a 50-basis-point rate increase ought to be contemplated if core inflation continues to be high. Markets currently assign a 14.5% probability to a 50-basis-point increase, a rise from the previous zero percent prior to Tuesday’s inflation report. Attention will turn to Friday’s US PPI report for additional insights into inflation and the Federal Reserve’s decision regarding interest rates. The headline PPI is anticipated to demonstrate a year-over-year increase of 6.6% in October, whereas the core PPI is forecasted to exhibit a rise of 5.0% YoY within the same reporting timeframe.
Moreover, the USD/CAD pair may gain ground as the commodity-linked Canadian Dollar could face challenges due to lower oil prices. West Texas Intermediate oil price loses momentum amid growing US crude oil inventory. US crude oil inventories experienced a significant increase last week, raising concerns regarding potential oversupply. According to the Energy Information Administration, crude stockpiles increased by 9 million barrels in the week ending November 5, in contrast to a decline of 5.267 million barrels in the preceding week. The prevailing market expectation indicated a reduction of 1 million barrels.
According to TD Securities, the US Dollar still has scope to outperform selectively, with analysts noting that “across global major currencies, we see room for the USD to rally selectively against CAD and KRW in the near-term.” They argue that “diverging employment data releases will likely keep USDCAD supported above 1.40,” as a “rising unemployment rate amid falling wage growth rate in Canada also reduces the market pricing of a December BoC rate hike relative to the Fed.”
