CAD/CHF Extends Upward Momentum Amid Hotter-Than-Expected Canada Inflation Data

• CAD/CHF pair gains positive traction for the second successive day
• Latest Canada Inflation data showed red-hot inflation continued to surge in July
• The rebound in oil prices offers some support to the loonie
• A positive risk tone undermines the safe-haven Swiss Franc and exerts upward pressure on the Pair

CAD/CHF pair prolonged its recent strong move up witnessed over the past three days or so and gained traction for the second successive day on Wednesday. The momentum lifted spot prices to a new one-week high around the 0.78360 - 0.73934 levels during the first half of the Asian session.

The latest Canada Inflation data showed red-hot inflation continued to surge in July. The Bureau of Statistics Canada reported on Tuesday that the headline Consumer Price Index (CPI) rose 7.6% on a year-over-year basis in July, down from an 8.1% gain in June. The deceleration was a result of slower year-over-year growth in gasoline prices. Excluding gasoline, prices rose 6.6% year over year in July, following a 6.5% increase in June, as upward pressure on prices remained broad-based.

Additionally, On a monthly basis, the CPI rose 0.1% in July, the seventh consecutive monthly increase. On a seasonally adjusted monthly basis, the CPI was up 0.3%. Both of these gains were the smallest, respectively, since December 2021. The hotter-than-expected inflation data report confirmed that the Bank of Canada(BOC) would look to further hike its policy interest rate to tackle the surging inflation in its upcoming monetary policy report on 7th September. In fact, following the release of its latest monetary policy interest rate in July, in which the Bank increased its interest rate by 100bps to 2.5%. The Central Bank confirmed that its Governing Council is resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.

That said, a rebound in oil prices also offered some support to the loonie. Oil prices rose slightly on Wednesday after three straight days of losses as data indicating a bigger-than-expected drop in U.S. crude inventories helped offset concerns over waning demand and a potential Iran-led supply glut. U.S.-traded Crude Oil WTI Futures rose 0.5% to $87.0 a barrel by 20:03 E.T. (00:03 GMT), while London-traded Brent Oil Futures were unchanged at around $92.72 a barrel. Both instruments slumped nearly 3% on Tuesday. Data from the American Petroleum Institute (API) on Tuesday showed that U.S. crude oil inventories fell by 448,000 barrels in the week to 12th August, more than expectations for a fall of 117,000 barrels.

The reading also marked the first drop in U.S. inventories after two consecutive weeks of increases. It indicated that crude demand might recover in the country following a drastic price fall. Investors should be aware that Canada is a leading exporter of oil to the U.S. and a surge in the oil prices impact the loonie significantly. Focus in crude markets is now on the potential revival of the Iran nuclear deal, which could lift some western sanctions on the country and release an additional 1.3 million barrels per day of crude supply into the market. The combination of factors offered some modest intraday lift to the loonie, which exerted upward pressure on the GBP/CHF.

On the swiss front, a positive risk tone undermines the safe-haven Swiss Franc and exerts upward pressure on the Pair. As we advance, in the absence of significant market-moving economic news data from both dockets, the focus now shifts toward releasing the Canada Core Retail Sales MOM report on Friday. The report would influence the near-term CAD price dynamics. This, in turn, should assist traders in determining the next leg of a directional move for the CAD/CHF pair. Additionally, the retail sales data will give some fresh insight into the economy's health.

Technical Outlook: Four-hour CAD/CHF Price Chart

From a technical standstill using a four-hour price chart, the price has extended Monday's modest rebound from the vicinity of 0.72913 level after a firm rejection from the lower horizontal trendline of the descending channel pattern turned support level. The key support level ranges from 1.20974 - 1.21067 levels. The trendline is plotted from 25th July. Some follow-through buying would lift spot prices towards the immediate hurdle(Supply zone), ranging from 0.74380 - 0.74513 levels. The Former coincides with the upper horizontal trendline( turned resistance level) of the descending channel pattern and would act as a barricade against the Pair. That said, a clean break above the supply zone and trendline would be a new trigger for bulls to continue pushing the price up and pave the way for additional gains.

The moving average convergence divergence (MACD) crossover at -0.00163 paints a bullish scenario. The RSI(14) level at 57.15 is in bullish territory and still far away from flashing overbought conditions. Additionally, the 20 Exponential Moving Average(EMA) points upwards, further adding to our bullish credence.

On the flip side, if the bears manage to regain back control of the market, pushing down the price to the immediate hurdle ranging from 0.73485 - 0.73599 levels, followed by a convincing break below the said barricade, would negate any term bullish outlook and pave the way for aggressive technical selling.