US Crude Oil and USDCAD Push Synched Range Swings Ahead of US CPI
US Crude Oil and USDCAD Push Synched Range Swings Ahead of US CPI
Both the US Dollar and Canadian Dollar are vulnerable to an increase in US crude oil prices. As both countries are oil export-led economies, the price of crude is a significant driver for their respective exchange rates.
USD/CAD has been driven lower by the selloff in US crude oil. This has caused the pair to retrace its losses from last week’s two-day highs and currently stands at a one-week low of 1.3330 per 1 USD. However, the market remains cautious as traders keep an eye on the US Consumer Price Index (CPI) release for January during early Tuesday.
The CPI is a measure of inflation, and should it beat market expectations, it will cause the dollar to rise against other currencies. It also helps to gauge the potential for further Federal Reserve interest rate hikes. Should the reading come in below expectations, the currency will be pushed further down against other pairs.
Core CPI has been largely supportive of gold longs in recent months, and Tuesday’s US Consumer Price Index for January will provide some much-needed love to those investors who have been waiting for an official boost in their favorite yellow metal. While the annualized CPI is expected to grow by 6.2%, that is still lower than December’s 5.5% expansion.
This could give gold bulls some hope that a Fed-supported tightening cycle isn’t over yet, especially if the services less energy services’ component of the CPI prints a big increase in January — around 0.7% or 0.8%.
As the US economy moves into a stronger growth cycle, it will be important for inflation numbers to move higher, and they are expected to do so this year. In particular, the Core CPI is the best gauge of whether that is happening.
Traders should also keep an eye on the CPI data as it is important to see how consumers respond to price increases. This will also affect the way manufacturers will react to changes in prices. If they feel like they are overstretched and can’t afford to continue purchasing goods, the demand for their products will fall, which in turn could lead to a drop in oil prices.
