The USD/CAD pair popped on Tuesday as investors focused on the relatively higher crude oil prices and the upcoming Canadian consumer inflation data. The price jumped to 1.2685, which was relatively higher than this week’s low of 1.2600.
Inflation and crude oil prices
The USD/CAD rose even as crude oil prices rose after bullish reports by OPEC and the International Energy Agency (IEA). On Monday, OPEC predicted that the global oil demand will rise to more than 100.8 million per day in 2022. This forecast was higher than the average oil consumption of 100.3 barrels in 2019 before the pandemic started.
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In a separate report, the Paris-based IEA said that oil demand will rise in the fourth quarter after falling in the past three months. This demand will coincide with a gradual increase of supply by OPEC and its allies.
Therefore, some analysts believe that oil prices will keep rising. In a report this week, those at Bank of America said that the price of Brent will likely hit $100 in the coming months. This trend is beneficial for the Canadian dollar because Canada is the fourth-biggest oil producer in the world.
The USD/CAD rose after the relatively weak American consumer inflation data. According to the Labour Department, the country’s headline consumer price index declined from 5.4% in July to 5.3% in August. Therefore, there is a probability that the country’s inflation has peaked.
Looking ahead, the next key catalyst for the USD/CAD will be the Canadian inflation data scheduled for Wednesday. Economists expect that the country’s inflation will retreat from 0.6% in July to 0.1% in August on a MoM basis. At the same time, they expect that the CPI rose from 3.7% to 3.9% on a year-on-year basis. These numbers will come after the recent Bank of Canada decision.
The daily chart shows that the USD/CAD pair has been in a tight range in the past few days. It is slightly above the lower side of the ascending channel. It is also being supported by the 25-day and 50-day moving averages while the MACD has formed a bearish divergence.
There is a likelihood that the pair will break out higher as bulls target the upper side of the ascending channel at 1.2945. A break below the lower side of the channel at 1.2485 will invalidate this view.
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