USD/CAD Faces Key Test Ahead of Canadian CPI, FOMC Minutes: Breakdown on Horizon?

investing.com:

While it will likely be a relatively quieter week so far as macro data is concerned, North American markets re-open today after a long weekend, and with China also back this week, markets should turn a bit livelier after a quiet period.

In the FX space, the USD/CAD will be among the busier of major currency pairs, as we will have Canadian CPI, the FOMC’s last meeting minutes, and global PMI data, all to come this week.

The USD/CAD was steady after holding above a key support area around 1.3450 to 1.3475 on Monday, ahead of these macro events.

Will we see a breakout or a breakdown this week?

The USD/CAD has been edging higher since the turn of the year, thanks to a strong performance from the US dollar. But the ongoing rally in equity markets has kept the USD/CAD’s upside limited, with the risk-sensitive Canadian dollar also rising against some of the weaker currencies.

Inflation in the US has remained hotter than expected, which has discouraged the USD bears from showing up aggressively, although the Dollar Index (DXY) did close lower in the last three days of last week and has started this week on the back-foot. Still, the DXY has been finding support on any short-term dips so far in 2024 and will be looking to extend those gains unless something changes fundamentally.

Following a hot CPI print of 3.1% y/y or +0.3% month-on-month as was reported last Tuesday, PPI was equally strong on Friday, printing +0.3% m/m against expectations of 0.1%, while core PPI rose 0.5% on the month, easily beating expectations of 0.1%.

The PPI gains were fuelled by a sharp rise in costs of services, highlighting concerns about the sticky nature of inflation. We also saw an uptick in the UoM consumer sentiment and inflation expectations