USD/CAD: Loonie on The Rise before Canada CPI Data

The US dollar is down against the Canadian dollar on Wednesday morning with oil price supporting the commodity sensitive Loonie while price action is muted in the dollar in the lead up to the release of FOMC minutes later today.

USD/CAD was lower by 23 pips (+0.17%) to 1.3232 with a daily range of 1.322 u3 to 1.326 as of 9.30am GMT. Today’s losses unwind most of the small gains made on Tuesday leaving the currency pair down on the week by -0.17%.

The CAD benefits from better outlook for oil price

An improving outlook for the price of oil while big national producers weigh up a cut to output is coming to the aid of the Canadian dollar, absent any other major driving forces. Russian President Vladimir Putin has been the possibility of the OPEC+ cartel of nations cutting oil output at an emergency meeting in response to the demand shock resulting from the coronavirus.

There are also some bullish expectations headed into the release of Canadian inflation stats this afternoon. The Consumer Price Index for Canada is projected to have risen 2.3% year-over-year in January, up from 2.2% in February. The higher inflation doesn’t mean that interest rates in Canada are likely to go up anytime soon given the uncertain backdrop surrounding international trade and the coronavirus outbreak in China. The Bank of Canada’s own measure has inflation remaining below its 2% target. The BOC CPI Core is expected to rise to 1.8% from 1.7% last month.

The USD need to be a haven now lower

The general markets backdrop is more constructive on Wednesday, which lessens the need for the US dollar as a haven. Investors are eyeing Federal Reserve minutes scheduled for release at 19:00 GMT today. Expectations are muted since the Fed meeting that they cover pre-dates the testimony of Federal Reserve Chair Powell to Congress. Any news on the Fed’s policy review would be of interest. The Fed decides could possibly replace its 2% inflation target with an average of some type. An average or any change in policy that implies targeting a lower rate of inflation could be dollar-positive because it would lower the bar to future rate hikes.

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