Stock Market Sell-Off Could Reverse USD CAD Trend

USD CAD traders reacted negatively to news that Canadian inflation was in line with expectations.  This sent a message that the Bank of Canada would refrain from applying bearish quantitative easing.  The only factor which could get in the way of continued weakness in the USD CAD will be a sharp correction in the equity markets.  Losses could be limited if crude oil remains firm however.

A report showing that Canadian inflation was in line with expectations helped to break the USD CAD on Wednesday. Traders were concerned that a drop in inflation would trigger the need for the Bank of Canada to apply quantitative easing in an effort to revive the economy.

Now that the BoC knows that there is a diminished threat of inflation, it is unlikely to interfere with the current economic recovery. The BoC is now going to monitor how much of an effect a stronger currency will have on the Canadian export market.

Now that this pair has broken out below a support price at 1.1474 the way of least resistance appears to be to the downside. The first downside target is 1.1059, followed by 1.0586.

Strong support for the Canadian economy is coming from the surging crude oil market, but weakening equity markets could help to limit gains in the Canadian Dollar.