USDCAD Breaks Support Ahead of CAD CPI

CAD Boosted by Oil GainsThe Canadian Dollar is rallying firmly this week. With oil prices pushing on to fresh highs for the year, CAD has been well supported and looks poised for further gains near-term. While the BOC has been on hold recently, the bank continues to stand by its message that further tightening is still an option should inflation warrant such action. After pausing its tightening program in January, the BOC lifted rates again in June and July citing stickiness in inflation at higher levels as warranting the move.BOC Tightening Risks RemainHowever, more recently the bank has returned to keeping policy steady, citing downside risks to the economy. As we’re seeing elsewhere, the Canadian economy is bearing the brunt of higher inflation and elevated interest rates, with household consumption slowing accordingly. Still, the BOC warned at the last meeting that future rate decisions will be data-dependent, with further hikes still an option if needed.CPI On Watch Looking ahead today, focus will be on the latest set of inflation readings. Annualised median CPI is forecast to remain unchanged at 3.7%. Still far above the bank’s 2% target, if CPI is confirmed at this level, hawkish BOC risks will remain a focus, supporting CAD. Indeed, if CPI is seen coming in above forecasts this will raise near-term tightening risks and should send CAD firmly higher near-term. Technical ViewsUSDCADThe reversal lower from the 1.3683 level has seen the market trading sharply lower. Price has broken below the 1.3501 level and now looks vulnerable to a deeper drop lower towards 1.3280, in line with bearish momentum studies readings. Notably, we have an active sell signal in the Signal Centre which was triggered at 1.3525 targeting 1.34.