Narrower trade deficit also contributes
USD/CAD fell to a four-week low after core inflation surprised to the upside. Economists had expected Canadian overall inflation to rise because of higher energy prices but core inflation also climbed, suggesting that the economy might be tighter than the Bank of Canada had anticipated.
The BOC has three core inflation measures called median, common and trim. Two of the three beat estimates with median at 2.0% y/y compared to 1.8% expected and trim at 2.1% compared to 1.8% expected.
Those are significantly beats and that was reflected in a quick drop in USD/CAD down to 1.3280 from 1.3330.
The drop was also fueled by the trade deficit narrowing to $2.9B compared to $3.25B expected. The prior was also revised to $3.09B from $4.25B. The details here were less favourable as it was a sharper drop in imports than exports responsible for the beat.
Earlier in the day, the Canadian dollar also rallied on the combination of better Chinese economic data and the Conservative election win in Alberta. The hope on the change in government is that a more business-friendly administration will attract investment to the oil-rich province.
Technically, USD/CAD may be breaking out of a consolidation pattern as it fell below a minor wedge and the April low of 1.3284. The next level to watch is the mid-March low of 1.3250.
