The 2.1% reading for the Consumer Price Index (CPI) accompanied by the 0.8% expansion in Retail Sales may continue to boost the appeal of the Canadian dollar as it encourage the Bank of Canada (BoC) to further normalize monetary policy in 2018, and Governor Stephen Poloz and Co. may emphasize ‘higher interest rates will likely be required over time' as the economy appears to be operating close to full capacity.
Keep in mind, the BoC may stick to the sidelines at the next meeting on January 17 as the ‘Governing Council will continue to be cautious, guided by incoming data in assessing the economy's sensitivity to interest rates,' but the central bank may stay on its current path of implementing two rate-hikes per year as ‘inflation has been slightly higher than anticipated and will continue to be boosted in the short term by temporary factors.' With that said, USD/CAD may exhibit a more bearish behavior over the coming months, with the pair at risk of extending the decline from earlier this year as the BoC alters the outlook for monetary policy.
USD/CAD Daily Chart
The near-term rebound in GBP/USD quickly fades, with the pair at risk for further losses as it continues to track the descending channel from earlier this month.
