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- USD/CAD remains steady as strong US CPI data boosts December Fed rate hike expectations.
- Hot US CPI data has reinforced expectations of a December Fed rate hike.
- The commodity-linked Canadian Dollar may struggle as oil prices decline amid growing US crude oil inventory.
USD/CAD moves little after two days of gains, trading around 1.4250 during Asian hours on Friday. However, the pair may appreciate as the US Dollar (USD) could receive support from persistent inflation concerns and expectations of higher interest rates. Traders will take more cues from the US October Producer Price Index (PPI) report later on Friday.
Stronger-than-expected US Consumer Price Index (CPI) inflation data released earlier this week has reinforced expectations of a Fed rate hike in December. Fed Governor Christopher Waller said that a 50-basis-point rate hike should be considered if core inflation remains elevated.
Markets now see a 14.5% chance of a 50-basis-point hike, up from zero before Tuesday’s inflation report. Attention will shift to Friday’s US PPI report for further clues on inflation and the US central bank’s decision on interest rates. The headline PPI is expected to show a rise of 6.6% YoY in October, while the core PPI is projected to show an increase of 5.0% YoY during the same report period.
Moreover, the USD/CAD pair also may gain ground as the commodity-linked Canadian Dollar (CAD) could face challenges on lower oil prices. West Texas Intermediate (WTI) oil price loses momentum amid growing US crude oil inventory.
US crude oil inventories rose sharply last week, fueling worries about oversupply. According to the Energy Information Administration (EIA), crude stockpiles climbed by 9 million barrels in the week ending November 5, compared to a fall of 5.267 million barrels in the previous week. The market consensus was for a decline of 1 million barrels.
USD strength seen as Canadian Dollar and Korean Won come under pressure
According to TD Securities, the US Dollar still has scope to outperform selectively, with analysts noting that “across global major currencies, we see room for the USD to rally selectively against CAD and KRW in the near-term.” They argue that “diverging employment data releases will likely keep USDCAD supported above 1.40,” as a “rising unemployment rate amid falling wage growth rate in Canada also reduces the market pricing of a December BoC rate hike relative to the Fed.”
