Why is the USD/CAD Rising Today Along With Consumer Inflation? Here's Why

Summary:

The rise in consumer inflation in June sets the tone for the USD strength that is showing up in the markets this Tuesday, sending the USD/CAD higher.

The USD/CAD is trading higher today and has maintained the intraday bullishness after the US Bureau of Labor Statistics reported a rise in the Consumer Price Index (CPI) for June. Monthly, the headline number rose from 0.6% in May to 0.9% in June (consensus of 0.5%), while the core CPI (CPI excluding food and energy prices) rose from 0.7% to 0.9% (consensus 0.4%).

This is the largest 1-month change since June 2008. The annualized figure of 5.4% (versus consensus of 5%) is also a 30-year high.

This increase continues another push to the upside and further questions the Fed’s insistence that the inflationary pressures now being seen in the US economy were transitory.

The data will once more bring up the question of early tapering. However, inflation only represents half of the equation. Employment is the other side of the coin. The Fed wants these two numbers to trend together in an upward direction before considering early tapering or lift-off. The rise in inflation is driving the greenback higher versus its rivals, explaining why the USD/CAD remains on bid.

Technical Outlook: USD/CAD

With the daily candle having cleared 1.24790, the pathway towards 1.25873 (26 February low and 8 July high) is open. A break above this new resistance allows the pair to aim for 1.26477. Above this level, 1.27013 serves as an additional target to the north.

Failure to break 1.25873 stalls the advance, but only a breakdown of the 1.23998 support and the ascending trendline that connects the June and early July lows leads to a return of bearishness, with 1.23142 and 1.22467 serving as additional targets to the south.