• USD/CAD slid to two-week lows on Wednesday, falling roughly 1.0% from near its 200DMA above 1.2600 to under 1.2500.
• The USD underperformed, driving much of the move, though spicey Canadian CPI figures also helped weigh on the pair.

USD/CAD slid to two-week lows on Wednesday, falling roughly 1.0% on the day from near its 200-Day Moving Average just above 1.2600 to just under the 1.2500 level, with bears now eyeing a test of this month’s annual lows near 1.2400. The pair was weighed primarily as a result of USD underperformance, with the Aussie and kiwi both also gaining more than 1.0% on the day versus the buck.

Another catalyst for USD/CAD downside on Wednesday was hotter than expected Canadian Consumer Price Inflation figures for March, which saw the YoY rate of headline price growth accelerate to 6.7% from 5.7% in February. Core measures all also saw larger than expected MoM and YoY jumps. The spicey numbers helped fuel expectations that the BoC will follow up last week’s 50 bps rate hike with more hikes of a similar margin at upcoming meetings.

Indeed, the BoC is expected to maintain its lead regarding monetary tightening over the Fed this year, making the loonie less vulnerable than some of its other G10 counterparts to buck strength as a result of hawkish Fed expectations. Should global commodity prices remain elevated in the coming weeks and months as a result of the ongoing Russo-Ukraine war, this should strengthen the case for an eventual break below 1.2400.

In the more immediate future, USD/CAD focus now switches to remarks from Fed Chair Jerome Powell on Thursday, who is expected to solidify expectations for 50 bps rate hikes at the upcoming Fed meetings, which could support the buck. Attention then turns to Canadian Retail Sales figures for March and US flash April PMI survey results on Friday.