Canadian Dollar remains steady despite falling oil prices

• USD/CAD holds steady as robust US CPI figures strengthen expectations of a December Fed rate rise.
• Elevated US CPI figures have strengthened expectations that the Fed will raise rates in December.
• Falling oil prices, against a backdrop of rising US crude inventories, may weigh on the commodity-linked Canadian Dollar.

Persistent inflation concerns and expectations of higher interest rates could underpin the US Dollar (USD), leaving scope for USD/CAD to advance. Following two days of gains, the pair is little changed at around 1.4250 in Friday’s Asian session. The US October Producer Price Index (PPI) report, due later on Friday, will provide traders with further direction.

US Consumer Price Index (CPI) inflation exceeded forecasts earlier this week, strengthening expectations that the Fed will raise rates in December. According to Fed Governor Christopher Waller, a 50-basis-point increase should be considered if core inflation stays elevated.

From zero before Tuesday’s inflation release, the market-implied probability of a 50-basis-point increase has risen to 14.5%. Friday’s US PPI figures will now be scrutinised for indications of inflation pressures and the US central bank’s interest rate decision. Forecasts point to headline PPI rising 6.6% YoY in October and core PPI increasing 5.0% YoY over the same reporting period.

Lower oil prices could also leave the commodity-linked Canadian Dollar (CAD) under pressure, potentially lending further support to USD/CAD. An increase in US crude inventories is weighing on momentum in West Texas Intermediate (WTI) oil prices.

Concerns over excess supply have intensified following a sharp increase in US crude oil inventories last week. Energy Information Administration (EIA) figures showed that stockpiles rose by 9 million barrels in the week ending 5 November, reversing the previous week’s decline of 5.267 million barrels. Market expectations had been for a drawdown of 1 million barrels.

US Dollar has room to strengthen against Canadian Dollar and Korean Won

TD Securities sees further scope for selective US Dollar gains. Its analysts observe that “across global major currencies, we see room for the USD to rally selectively against CAD and KRW in the near-term.” Their view that “diverging employment data releases will likely keep USDCAD supported above 1.40,” reflects the argument that a “rising unemployment rate amid falling wage growth rate in Canada also reduces the market pricing of a December BoC rate hike relative to the Fed.”