Canadian Dollar Holds Five-Year Low On Crude Oil Decline, Ahead of CPI Data

The Canadian dollar is holding near five-year lows against the US dollar with crude oil at multi-month lows and ahead of Friday's consumer price data which is forecast to show Canadian inflation has eased in September.

The USD/CAD rose to as high as 1.1330 from Wednesday's close of 1.1255. The previous day, the pair had touched 1.1387, its highest since July 2009.

On Thursday, spot delivery WTI crude traded at $80.14, a 28-month low. Oil prices had been on a weakening trend since mid-June and are headed for third straight weekly losses.

Since the end of June, spot WTI has fallen as much as 24%, and in October alone, the drop was more than 12%, until now.

The Canadian dollar is headed for its second straight monthly loss and is down more than 6.2% since June.

The International Energy Agency slashed its expectations of world demand for oil by 200,000 barrels per day on Tuesday, citing a slowing global economy.

The IEA said it expects global demand for oil to be 92.4 million barrels per day this year. That number is likely to inch higher to 93.5mbd next year, but that is about 300,000 barrels less than the agency was forecasting as recently as last month.

The demand figure for this year is the smallest growth the energy agency has forecast in five years.

Inflation Data, Yellen

The headline CPI inflation in Canada may have eased to 2.0% year-on-year in September from 2.1% in August.

The Bank of Canada core inflation, the gauge that is used for monetary policy purposes, may have eased to 0.2% month-on-month from 0.5%. Year-on-year, the BoC inflation rate could be steady at 2.1%.

Around the time of the CPI data release, Fed Chair Janet Yellen will be delivering a speech, and her remarks in the context of strengthening US labour market and mixed signals from the global economy will be crucial for markets including crude oil and currencies.

The US housing starts data will also be out at the same time and could impact the USD/CAD pair upon surprises.

USD/CAD Technical Analysis

The uptrend since July 2011 is intact in the pair and the rise above 1.1280 this week has helped it break the 50% Fibonacci retracement of the March 2009-July 2011 selloff.

Now the 61.8% ratio at 1.1670 makes a strong resistance but 1.1500 could be a psychological level. Further north, 1.1880 and 1.2200 are the two levels to watch ahead of a retest of 1.3000, the 2009 peak.

In case of a reversal from current levels, the pair will likely look for a base at 1.0810, the 38.2% line.

As long as that holds, the pair will more likely continue the uptrend but a break of that will open doors to 1.0270, the 23.6% retracement.

The next level to watch on the downside will be 0.9800 and then the 2011 low of 0.9400.