It was a good day for the Canadian dollar, which soared against the greenback. USD/CAD’s 1% decline was the strongest one-day decline in 2 months.

Despite lower oil prices and Canadian bond yields, the loonie benefitted significantly from U.S. dollar weakness. These 2 factors should have driven CAD lower but at the end of the day, the Bank of Canada has been more eager to raise interest rates than the Fed thanks to consistent improvements in Canadian data. CPI is scheduled for release on Friday and given the rise in the price component of IVEY PMI and the central bank’s hawkishness, inflation should have recovered.

Technically, strong days like the one we’ve seen today in USD/CAD tend to have a continuation. We are looking for a move down to 1.26 with the possibility of a stronger sell-off down to 1.25.

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