Canada's inflation holds at 3.0%: how are you approaching USD/CAD before the Fed?
Statistics Canada's figures for August, published on 14 September, show consumer prices up 3.0% on a year earlier, the same pace as July. Excluding gasoline, prices rose 2.4%, and gasoline itself was up 22.8% on the year (full report).
The Federal Reserve announces its decision on 16 September (what to watch), so USD/CAD has news on both sides of the pair this week.
If you trade the pair, it would help others to hear:
- whether you look at headline inflation or the figure excluding gasoline when you think about the Bank of Canada
- how much weight you give oil prices compared with interest rate expectations (oil and the Canadian dollar)
- whether you reduce position size, or stay flat, around the Fed announcement
Please keep replies to your own reasoning and plans. Posts that promise a direction or sell signals will be removed.
Background: Oil and currencies: why crude prices move the Canadian dollar
Crude oil links energy markets to currencies through trade, inflation and interest rates. How that works for the Canadian dollar, and why the link isn't fixed.
Why does oil affect the Canadian dollar?
Crude oil is one of Canada's largest exports. Higher prices increase export earnings and demand for Canadian dollars, and they also affect inflation and interest rate expectations.
Does USD/CAD go down when oil goes up?
Often, because a stronger Canadian dollar pushes USD/CAD lower. But the relationship isn't fixed: interest rates, trade relations and risk sentiment can outweigh oil.
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The Fed's decision is now out, so an update for anyone trading USD/CAD.
- US side: the Fed raised its target range to 3.75%–4.00% on 16 September (report).
- Canadian side: inflation held at 3.0% in August, while prices excluding gasoline rose 2.4% (report). The Bank of Canada's published deliberations show fuel prices and new US tariffs among the reasons it kept its rate at 2.25% (summary).
- Oil: Brent has traded above $100 a barrel since early September, which has historically supported the Canadian dollar.
That leaves the pair pulled by a wider US-Canada rate gap on one side and high oil prices on the other. When drivers conflict like this, some traders reduce size or wait for one of them to clearly dominate the price action.
Background: oil and the Canadian dollar. Members, which driver are you giving more weight to this week?
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