USD/CAD spikes to fresh two-week high post-US CPI, bulls ignore upbeat Canadian jobs data

• The USD strengthened across the board and pushed USD/CAD to a fresh two-week high.
• Stronger US CPI reaffirmed hawkish Fed expectations and provided a strong lift to the buck.
• Better-than-expected Canadian CPI did little to benefit the loonie or hinder the move up.

The USD/CAD pair added to its intraday gains and shot to a fresh two-week peak, around the 1.2770 region in reaction to stronger US consumer inflation figures.

The headline US CPI climbed 1.0% MoM in May as against 0.7% expected and the yearly rate jumped to a fresh 40-year high level of 8.6%. Adding to this, core inflation, which excludes food and energy prices, rose 0.6% MoM and 6.0% YoY, surpassing consensus estimates for a reading of 0.5% and 5.9%, respectively.

The data reaffirmed market bets that the Fed would need to tighten its policy at a faster pace to curb soaring inflation. In fact, the markets are now pricing in about 215 bps of cumulative hikes in 2022, with 50 bps hikes each in June, July and September meetings. This, in turn, boosted the US dollar and the USD/CAD pair.

On the other hand, the Canadian dollar failed to gain any meaningful traction following the release of better-than-expected domestic employment data. Statistics Canada reported that the number of employed people rose 39.8K in May (30K anticipated) and the unemployment rate edged lower to 5.1% from the 5.1% in the previous month.

With the latest leg up, the USD/CAD pair has now rallied nearly 250 pips from its lowest level since April 21, around the 1.2520-1.2515 region touched on Wednesday and seems poised to appreciate further. Hence, a subsequent move towards the 1.2800 mark, en-route the 1.2825-1.2830 supply zone, now looks like a distinct possibility.

Technical levels to watch