• Canada: inflation slowdowns further in December.
• US: Empire manufacturing index plummets unexpectedly in December.
• USD/CAD remains sideways, unable to hold above 1.3400.

The USD/CAD broke below 1.3400 following the release of US manufacturing and Canadian economic data. It printed a fresh daily low at 1.3383. It remains near the lows, with a bearish bias as the Loonie outperforms and the US Dollar falls across the board.

Data weighs on USD/CAD

The US Empire Manufacturing Index dropped sharply unexpectedly to the lowest level since May 2020. The index fell from -11.2 to -32.9, against expectations of a recovery to -4.5. Price indicators of the reports showed a slowdown. The Greenback fell after the report.

In Canada, inflation numbers came in below expectations. The Consumer Price Index fell by 0.6% in December with the annual rate slowing down from 6.8% to 6.3%. The Bank of Canada Prince Index Core fell by 0.3% and the yearly rate dropped from 5.8% to 5.4%, versus the 6.1% of markets consensus.

“Big picture, this probably doesn't change much for the Bank of Canada. Yesterday's Business Outlook Survey suggested that tightening is starting to have an impact, but today's data, coupled with the stronger than expected Q4 activity data, reinforces the notion that the economy is in excess demand. The most prudent move is for the BoC to lift rates by 25 bps next week. After last year, the BoC cannot afford to risk falling behind the curve again. We continue to look for 4.50% as the terminal rate”, said analysts at TD Securities.

Sideways, within a bearish trend

Last week, the rebound from monthly lows in USD/CAD was capped by the 1.3450 area. During the current week, the pair is showing difficulties in holding above 1.3400. Recent price action confirms that bearish risks prevail.

On the flip side, an initial support emerges at 1.3345 and then attention would turn to the January low at 1.3320.

Technical levels