After hitting fresh monthly lows at 1.3387, USD/CAD has jumped back above its 50 SMA (daily). However, a key risk event ahead is the US CPI - Considering we are talking about the exchange rate of USD against CAD, it will be impossible to ignore. In fact, many are saying that the CPI release will be a bigger event than the outcome of the US mid-term elections.
The general market perception is that the US CPI data will show a slowdown of inflation in the USA. However, if inflation actually increases, it would mean more economic trouble for US citizens and might even warrant more rate hikes in the near future.
Earlier, USD/CAD was unable to defend the 1.3496 level (October low) as Canada added 108.3 K new jobs to the economy. Furthermore, the next BoC (Bank of Canada) meeting could also further pull back the USD/CAD pair.
In case you don't know, an increase in the USD/CAD pair means that the USD is getting stronger. On the contrary, a decrease in the USD/CAD means the Canadian currency is gaining strength.
Coming back to the top of the BoC meeting, analysts believe that the bank governor will continue the rate hiking cycle even in 2023.
As for the US data releases, the market is expecting a slowdown in US inflation during October. If this happens, it will allow the Fed to arrange a soft landing for the US economy.
So, for now, even the upward movement of the 50 SMA (daily) on the USD/CAD may be of little significance as the important impetus will be the CPI data from the USA. That's why it is highly likely that the USD/CAD will continue to decline from 1.3808 (which means CAD will gain strength).
A quick look at the market sentiment tells us that USD/CAD longs are 44.16% while the rest are short. So if these longs or even shorts close their positions, the market situation will tilt towards that!