Amid another relatively light week of economic data, Canada releases its Consumer Price Index inflation data on Friday morning, and expectations are not high. After missing forecasts for the past two months, the monthly CPI for October is expected to come in at +0.1%. In the run-up to this important data release, the Canadian dollar has continued to be pressured, as it generally has been for the past two months. This pressure has helped contribute to a USD/CAD uptrend that has been in place since the early-September 1.2060 low.
Last month, the Bank of Canada held interest rates steady, as widely expected, after previously raising rates back-to-back over the summer. But the central bank also issued a dovish statement that focused on caution amid uncertainties. These uncertainties included the NAFTA renegotiation, lagging wage growth in the labor market, and lower projections for export growth, housing, and consumption.
Also last month, Canadian GDP figures for August were released, which came out negative for the first time this year at -0.1%, missing forecasts of +0.1%. Combined with recent weakness in retail sales and inflation data, economic growth worries have continued to plague the Canadian dollar.
Though the US dollar took a dive earlier this week, due in part to concerns over delays in US tax reform, USD/CAD has remained supported and actually rose for the week thus far on Canadian dollar weakness. This week has also seen a continued sharp pullback in crude oil prices, which has helped to exacerbate pressure on the Canadian dollar.
From a technical perspective, USD/CAD is following a well-established uptrend support line extending back to the noted early-September 1.2060 low. This two-month uptrend has been a partial correction (nearly 50%) of the extensive May-September downtrend. With any continuation of the current bullish trend, the next major upside targets are at the late-October 1.2915-area highs followed further to the upside by the key 1.3000 psychological resistance level.