USDCAD is testing from the bottom the support line of the upward trend that started in mid-2021. If the Canadian dollar (CAD) maintains its current trend, we may observe a continuation of declines in the currency pair. In this matter, much will depend on the publication of macroeconomic data this week. The package of macro data from Canada will begin with the publication of the inflation report tomorrow, followed by data on industrial production and retail sales. The consensus indicates that inflation is expected to rise to 3.3% year-over-year compared to 3.1% year-over-year in November. If the data turns out to be in line with expectations or higher, as we have observed in the case of CPI data publications for other countries for December, then CAD may continue to strengthen against the USD.
CPI data are also closely monitored by the Bank of Canada (BoC), which, after its last meeting, emphasized the problem of persistently higher price dynamics. At its last meeting, the BoC maintained its key overnight rate at 5% and signaled readiness for further hikes if necessary. On the other hand, data on industrial production and retail sales will also be important, as they will show the condition of the Canadian economy and the ability to maintain further tightening. The BoC noted that it sees signs of economic slowdown and the impact of higher interest rates on spending. If the data turns out to be weak, it could in turn weaken the CAD in the short term.
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Source: xStation 5
