USD/CAD AIMS TO SUSTAIN DECISIVELY ABOVE 1.3400 AMID UPBEAT FED RATE HIKE BETS

The USD/CAD pair is gathering strength to shift its auction above the round-level resistance of 1.3400 in the Asian session. The Loonie asset has shown a decent run after a gradual correction to near 1.3360. The upside in the major looks favored as Canada’s inflation has softened further and chances of one more rate hike from the Federal Reserve (Fed) are skyrocketing.

Tuesday’s release of Canada’s Consumer Price Index (CPI) confirmed that the Bank of Canada (BoC) will continue to keep interest rates steady at 4.5%. Monthly headline CPI accelerated by 0.5% as expected by the street. Also, annual headline inflation softened to 4.3% in line with the market consensus. Core CPI that excludes oil and food prices softened to 4.3% from the former release of 4.7% but remained higher than expectations of 4.2%.

A continuous decline in Canada’s inflation indicates that the current monetary policy by BOC Governor Tiff Macklem is restrictive enough to curtail inflationary pressures. BoC Governor strongly supported the need of keeping rates higher for a longer period to return inflation to 2% target in an opening statement before the House of Commons Standing Committee on Finance on Tuesday.

The US Dollar Index (DXY) is approaching 102.00 as investors are confident about a consecutive 25 basis point (bp) rate hike from the Fed. Meanwhile, investors’ risk appetite is deteriorating amid caution due to the quarterly result season in the United States economy. S&P500 futures are gradually declining as more rate hikes could dent corporate profits further.