USD/CAD rebounds back towards 21DMA near 1.2830 despite hot Canadian inflation figures

• USD/CAD has bounced from 1.2800 level to consolidate around 21DMA near 1.2830 amid broadly downbeat sentiment and crude price weakness.
• The pair only got a very short-lived boost from hotter than forecast Canadian CPI figures for April.

Hotter than anticipated headline and core Canadian Consumer Price Inflation figures for April that strongly support the case for rapid BoC tightening in the coming quarters have failed to give the loonie a lasting lift. In wake of the data, which was released at 1330BST, USD/CAD dipped towards but was unable to test the 1.2800 level and has since reversed higher into the 1.2830s, where it trades with gains on the day of about 0.2%.

A pullback in crude oil prices and downside across the global equity space as macro sentiment takes a turn for the worse is the major culprit weighing on the loonie intra-day and benefitting the safe-haven US dollar. There might also be some profit-taking in play, with USD/CAD has fallen about 1.8% in just the last three sessions alone after printing its highest levels since November 2020 last week near 1.3100.

The economic calendar is quiet for the rest of the week aside from a few tier two US data releases (like the May Philadelphia Fed manufacturing survey on Thursday). That suggests broader risk appetite and price action in crude oil markets will remain the driving forces of USD/CAD. The pair, for now, seems content to consolidate around its 21-Day Moving Average in the 1.2830 area and, if it is to break lower towards the next area of support around 1.2700, there is probably going to need to be a sustained bounce in risk appetite and crude prices.

In wake of Fed Chair Jerome Powell’s hawkish remarks on Tuesday, fears about aggressive Fed tightening at a time when global economic growth is quickly slowing may prevent any such rebound in global sentiment. As a recap, the main message from the Fed Chair (and other Fed policymakers who have spoken this week) was that the central bank remains hyper-focused on tackling sky-high inflation and will not hesitate to move rates above so-called neutral (i.e. the 2.5% area) if required.