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Strong U.S. Inflation report boosts buck

Published May 18, 2016
  • Overnight market action saw WTI oil prices reach a seven month high at $48.42/barrel before retreating on profit taking and positive developments regarding recent supply disruptions in Nigeria and Libya
  • The fall in oil prices coincided with the Loonie giving back all of its overnight gains against the USD, having reached a three day high during the European session….
  • ….And as North America gets underway the Loonie is coming under renewed pressure following an upbeat inflation report out of the U.S
  • The seasonally adjusted Consumer Price Index (CPI) for April rose 0.4%, beating economists expectations for a 0.3% gain
  • April Housing Starts in the U.S also came in above expectations, rising to 1.172M units compared with 1.127M expected
  • Slightly offsetting the strong U.S data were March Manufacturing Sales for Canada which came in better than expected, falling -0.9% instead of the -1.8% drop expected (still dismal)
  • The strong U.S data points to underlying strength in housing demand and wage growth which may increase the Fed’s appetite for hiking interest rates in the second half of 2016
  • Yesterday, regional Fed President Jeffrey Lacker gave an interview to the Washington post in which he reinforced his preference for a series of rate hikes this year given the tightening labour markets and steadily increasing inflation profile…
  • …If this view becomes more common place amongst Fed officials then U.S treasury yields will have to play catch up very quickly as the market is currently not pricing in any rates hikes this year, meaning that the upside risk for the USD may be much greater than the downside
  • Up next at 915am EDT are Industrial Output data from the U.S for April – a 0.3% rise in activity is expected

USDCAD Technical Glance
The period of consolidation above the 21 day moving average (DMA) continues.  As long as prices are remain above the 21 DMA the trend should continue to favour USD bulls.