The rise and fall of the Canadian dollar: causes and conclusions

Today, the Canadian dollar was able to simultaneously disappoint both bears and bulls of the USD/CAD pair. After the release of data on the growth of inflation in Canada, the Looney unexpectedly showed a downward impulse and quite confidently, almost 100 points lower. As soon as traders adapted to the new conditions, the pair sharply turned 180 degrees and updated yesterday's high of literally in a few hours. As a rule, such price surges lead to certain losses even with the correct placement of stops. However, when analyzing previous events, we can conclude that the downward trend was doomed to failure although not so rapid.

Take a look at the weekly timeframe of USD/CAD Looney has been trading in a wide price range 1.3270-1.3420 and more simply in the price range of 33-34 figures since the beginning of March. From the third of March, both buyers and bears intercept the initiative alternately, and, judging by the D1 schedule, the weekly schedule is observed. This is, of course, a coincidence but in this context, it is very significant. Today's price rebound suggests that traders are still not ready to go out of the boundary indicated above. Hence, as soon as the pair reached the level of 1.3270, the bears met with strong resistance after which the price literally returned to previous positions.

It is noteworthy that both bears and bulls of the pair today have used fundamental factors as contradictory or disproportionate to their stated ambitions as information drivers. Thus, the USD/CAD reacted with a southern impulse at the start of the US session after the release of data on the growth of Canadian inflation. If we judge only based on the price chart, we can assume that inflation made a real breakthrough. Although in fact, almost all indicators came out at the forecast level.

The consumer price index on a monthly basis remained at the level of February and grew to 0.7%. In annual terms, the figure rose to 1.9% which was expected by the experts. With basic inflation not everything is so smooth: the core index unexpectedly sank to 0.3% with a growth forecast of 0.7% on a monthly basis and it rose to 1.6% with a forecast of 1.3% in annual terms. Inflation did show a positive trend in almost all parameters but these figures were also expected by the market. The steady growth of the oil market for both Brent and WTI could not pass without a trace over the past few months. For example, gasoline in Canada increased by 11.6% in the month under study. In other words, the experts' forecasts were fully justified and today's results were widely expected.

It is likely that in the future, Canadian inflation will be able to reverse the trend in favor of USD/CAD bears if it demonstrates a stable consistent growth. But even in this case, the market will consider the situation complex, starting with the state of the world or the Chinese economy and ending with the dynamics of the oil market. All of these factors should ultimately affect the determination of the Canadian regulator, who interrupted the monetary tightening cycle earlier this year.

Let me remind you that at its last meeting, which was held in early March, the Bank of Canada retained the rate at 1.75%. This shows that it cannot say with certainty when the next round of increase will come. As noted in the Central Bank, the economic downturn, which began to grow at the end of last year. It turned out to be "stronger and more dynamic" than previously thought. There is the weakness of the real estate market and the reduction in consumer spending. Also noting a significant reduction in price pressure. Such rhetoric was voiced by the Canadian regulator a month ago but whether the Bank of Canada will change its position at the April meeting (which will take place in the week of April 24) is an open question. The answer to this question will allow traders to determine the vector of further movement of the USD/CAD pair in the long term.

In this context, the reason for the upward pullback of USD/CAD looks very significant. The pair stopped the decline and grew by more than 100 points on only one report of the Energy Information Administration. According to the figures in this report, oil reserves in the United States fell by 1.4 million barrels after three weeks of growth in a row. On the one hand, this is rather unpleasant news for the oil market and commodity currencies, but on the other hand, even oil quotes reacted quite coolly to this release as Brent minimally decreased from $72.15 to $71.65 and WTI from $64.45 to $63.70.

In other words, the USD/CAD traders used this report only as a formal reason to return the price to previous levels, especially when the pair touched the lower limit of the price range of 1.3270-1.3420. All of these suggests that the Loonie will soon be trading at this level until the April meeting of the Bank of Canada.

The material has been provided by InstaForex Company - www.instaforex.com