USDCAD plunges more than 100 pips, below 1.3400 after US CPI

• The US Consumer Price Index (CPI) for October was lower-than-expected, which weighs on the US Dollar.
• US Treasury yields are plummeting, with the 10-year benchmark note, down by almost 30 bps.
• Fed’s Harker: Rates are in the restrictive territory, and the Fed could pause around 4.50%.

The Loonie extends its gains against the American Dollar, as shown by the USDCAD plummeting more than 1% following the release of the US inflation report, which showed that the Federal Reserve monetary policy is beginning to cool down inflation. At the time of writing, the USDCAD is trading at 1.3350 after hitting a daily high of 1.3571.

A cooler US CPI report weakens the US Dollar

US equities are skyrocketing, after the release of the US CPI, with the Nasdaq putting a staggering comeback, up by more than 5.50%. Inflation in the United States was lower-than-estimated as monetary policy is beginning to catch on to stubbornly high prices. The Consumer Price Index (CPI) for October rose by 7.7% YoY, below estimates of 7.9%. In the same tone, the core CPI, which excludes volatile items like food and energy, crept lower by 6.3% YoY, beneath the 6.5% foreseen by street analysts.

At the same time, the US Department of Labor released the Initial Jobless Claims for the last week, showing that the labor market is also easing. Claims jumped by 225K exceeding the 220K foreseen. It should be noted that the previous week’s US Nonfarm Payrolls report showed that the Unemployment Rate ticked up from 3.5% to 3.7%.

The USDCAD plunged at the release, after hoovering around the 1.3530 area down beneath the 1.3400 area, as the report would ease pressure on the Federal Reserve, as the US central bank prepares to slow the pace of interest-rate increases. Concerning the latter, the CME FedWatchTool reports that chances of a 50 bps jumped to 80%, vs. 56% a dar before.

Following the release, the US Treasury bond yields are plunging, with the US 10-year benchmark note rate at 3.812%, down 28 bps, a headwind for the US Dollar. The US Dollar Index, a gauge of the buck’s value against a basket of six peers, is down 1.93%, at 108.311.

At the time of typing, the Philadelphia Fed President Patrick Harker is crossing newswires, and he said that the restrictive Fed Policy stance is seen above 4% and added that rate hikes could pause when the Federal Funds rate (FFR) hits 4.5%. Harker said that monetary policy lags “about a year or so.”

USDCAD Key Technical Levels