Since the mid of February, the Canadian dollar, well known as the loonie, has been gaining traction against its safe-haven U.S. counterpart to trade close to 1.2681 on Friday, following a rally in oil prices, coupled with domestic data on Wednesday revealing inflation heating up in January.
Indeed, data from Statistics Canada showed the annual inflation rate accelerated in January to a 30-year high of 5.1% as food and housing costs continued to rise, which bolstered expectation for a steady series of interest rates hikes from the Bank of Canada (BoC).
The money market expects a hike at the next BoC policy announcement on March 2, with about a 30% chance of a more considerable 50 basis point increase than the more conventional move of 25 basis points.
The ongoing Russia-Ukraine conflict recently pushed crude oil prices, one of Canada’s major exports, and underpinned the commodity-linked loonie. However, it is expected that the U.S. may salvage the 2015 Iran nuclear deal, which might blow up oil stockpiles. The removal of sanctions on Iran by the U.S might not only spurt the total global supplies but might cap the boiling oil prices.
On the USD/CAD 10-mins chart, the pair is currently trading in the range of 1.2675-80. From an Elliott wave perspective, the Canadian dollar may be unfolding into a final stage of a Flat corrective structure (A-B-C). A flat is a sideways corrective structure labelled A-B-C, with two corrective moves in waves A and B before an impulsive move in wave C.
Based on the current corrective structure, there is still room for one more leg to the upside on the Canadian dollar towards 1.2621, followed by 1.2580. However, a move above 1.2794 would invalidate this count.