Photo by Michelle Spollen on Unsplash
 

• The USD/CAD has been in a strong uptrend in the past few days.
• Canada will publish its December inflation data on Wednesday.
• The report will come a few days after the US published inflation numbers.

The USD/CAD continued its uptrend on Monday as traders refocused on the upcoming Canadian inflation report. The pair jumped to a high of 1.3430, its highest point since December 14th. It has surged by more than 1.92% from its lowest point this year. 
 

Canada inflation data ahead

The key catalyst for the USD to CAD report will be the upcoming Canadian consumer inflation report. Economists polled by Reuters expect the data to show that the headline Consumer Price Index (CPI) rose from 3.1% in November to 3.3% in December. On a MoM basis, economists expect the data to show that inflation dropped by 0.1%.

Core inflation, which excludes the volatile food and energy prices, is expected to come in at 2.9%, a slight increase from the previous month’s 2.8%. If economists are accurate, these numbers will mean that the Bank of Canada (BoC) has more work to do.

Like in the United States, a key inflationary factor is the housing market which has seen rents in key cities jump. As a result, the Canadian government is planning to slow the number of foreign students in the country. These students, who total over 800k, have been blamed for hiking rents.

Canada’s housing sector has also been blamed for the low number of inventories in the market. This, however, could be changing as the housing starts are expected to show an increase of over 243k houses.

If inflation remains strong, there is a likelihood that the Bank of Canada (BoC) will consider a rate hike in the coming months. Alternatively, the bank will consider leaving them unchanged for longer. 

Canada’s inflation figures will come a few days after the US published strong inflation numbers. According to the BLS, the headline CPI rose from 3.2% in November to 3.4% in December as housing costs jumped.

USD/CAD technical analysis

(Click on image to enlarge)

USD/CAD chart by TradingView

The daily chart shows that the USD to CAD exchange rate has been in a strong uptrend in the past few days. It has moved slightly above the 25-day moving average. It remains below the 50-day moving average.

At the same time, the Relative Strength Index (RSI) has moved above 50 while the Stochastic Oscillator has jumped to the overbought point. The pair has also remained below the Ichimoku cloud. Therefore, the pair will likely resume the bearish trend after the Canada inflation report.

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