USDCAD moved lower today after the U.S. CPI report came in slightly softer than expected, adding pressure to the dollar and reinforcing the short-term downside bias in the pair.
From a technical perspective, the pair fell back below its 100-hour moving average at 1.38706, giving sellers another modest but important victory in the near term. That setback comes after a strong rebound since December 26, when USDCAD climbed from a low of 1.36415 to a peak at 1.3917 on Friday. That rally had briefly pushed the pair above its 100-day moving average for the first time since December 5 (currently at 1.39028), but dollar selling on Monday — driven in part by weekend news of a U.S. Justice Department investigation into Fed Chair Powell — forced the pair back below that longer-term benchmark. The failed breakout has tilted the short-term technical bias back toward the downside. In the video above, I walk through the key technical levels that are shaping near-term price action.
Fundamentally, the CPI report reinforced the idea that inflation pressures are easing, but still remains above the Fed target at 2.0%. Headline CPI rose 0.3% month-on-month, matching expectations, while the year-on-year rate held steady at 2.7%. The more important signal came from core inflation, which increased just 0.2% on the month versus expectations for 0.3%, with the annual core rate at 2.6%, below the 2.7% forecast and unchanged from the prior reading. Even the Fed’s closely watched supercore measure — services excluding housing — cooled, slipping to 0.29% from 0.35% previously, pointing to softer underlying services inflation.
Markets reacted in classic dovish fashion. Rate-cut expectations for year-end increased from around 52 basis points to roughly 57 basis points, pushing U.S. yields lower, weakening the dollar, lifting equities, and extending gains in precious metals. The 10-year Treasury yield is down about two basis points on the day. Importantly, the data also confirms the disinflation trend seen in November, which many had initially dismissed due to government shutdown distortions. While the report alone is unlikely to force an immediate shift in Fed policy, the combination of cooling inflation and a still-resilient economy remains supportive for risk assets, assuming no new political or geopolitical shocks emerge.
That view aligns with comments from Wall Street Journal Fed-watcher Nick Timiraos, who said the December CPI report is not enough to move the Federal Reserve off its current wait-and-see stance. He noted that officials want clearer and more sustained evidence that inflation is leveling off and heading lower before resuming rate cuts, meaning a couple of softer prints will not be sufficient. With the next FOMC meeting at the end of January, policymakers are in no rush to react.
Timiraos also reminded readers that the Fed cut rates at its last three meetings, bringing the policy rate to a 3.5% to 3.75% range, not because inflation had been beaten, but because officials were increasingly concerned about the risk of a sharper-than-expected slowdown in the labor market. Looking ahead, further rate cuts will require either new signs of labor-market weakness or more convincing evidence that inflation is fading, a process that could take several more months of data to confirm.
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