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USD/CAD hitting multi-month lows amid USD weakness, soaring oil

Broad US dollar weakness and strong oil continue to undermined the USD/CAD pair.

The USD/CAD pair continued to decline today, and it was trading at around 1.2350 on Wednesday, waiting for todayโ€™s inflation report.

Inflation moving markets today

Later in the day, Canadian inflation is expected to rise further, with the Consumer Price Index forecast to tick higher to 4.3% yearly, up from 4.1% scored in August . Additionally, the core indicator will likely accelerate as well, seen printing 3.6%, up from 3.5% previously. As a result, the month-on-month change is expected to rise for both the normal and the core indicator.

There are no US data on the agenda today. Therefore, the current anti-dollar sentiment could continue , possibly keeping the greenback under pressure.

The USD/CAD pair fell to the lowest level since the beginning of July , undermined by the broad US dollar weakness and rising oil prices. There is usually a positive correlation between the Canadian dollar and oil. Oil continues to perform exceptionally well, with the WTI oil benchmark rising above the 83 USD threshold, the highest since October 2014.

The Canadian dollar should also perform well as long as oil continues in its medium and long-term uptrends.

It looks like the US dollar has failed to capitalize on the rising US yields, which used to be one of the most important fundamental drivers for the USD. The short-term two-year US yield doubled over the last month , rising from 0.2% to 0.4%, but not helping the USD/CAD pair to advance higher .

BoC remains optimistic

From other news, the Bank of Canadaโ€™s BoC Business Outlook Survey for the third quarter revealed Monday that the business sentiment continued to improve, with the survey indicator hitting a record high of 4.73, compared to 3.96 in the second quarter.

Additionally, expectations for 1-year ahead inflation increased to a record high 3.72%; spike seen as temporary. Finally, 45% of firms expect total CPI to be above 3% over the next two years; half of those firms say drivers of higher inflation are temporary.

Inflation expectations are not anchored and continue to rise, most likely prompting the Bank of Canada to start hiking rates next year.

Daily chart looks bearish

The following support seems to be in the 1.23 region. If not held by bulls, we could see another leg lower, targeting the psychological level of 1.20, where the current cycle lows are also located from the summer.

Alternatively, the USD needs to rise above 1.25 to cancel the immediate bearish threat. Till then, the short and medium-term outlooks seem bearish.

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