The Canadian dollar started the week on the rise, and ends it in some confusion. After disappointing macro statistics and another round of inflation, the loonie significantly fell. However, the loonie is trying to "keep face" and is looking for ways out of this situation.

The Canadian dollar strengthened against the US dollar in the middle of the week, reaching 1.2584. However, after four days of growth, the USD/CAD pair showed a downward momentum, retreating from the local high at 1.2644. To date, the pair is struggling to hold its positions, but is determined to catch up. On Thursday, April 21, the USD/CAD pair traded at 1.2480, leaning to the downside and upside from time to time.

The "loonie" was tripped up by the growing inflation recorded in Canada. According to current data, consumer inflation in the country accelerated to 6.7% in March, exceeding forecasts. Recall that this figure was 5.7% in February. Against this background, the Bank of Canada is interested in raising interest rates above current levels. The central bank's immediate goals are to curb inflation without provoking a recession in the economy.

The pressure on the USD/CAD pair is exerted by the growing US currency. According to analysts, the resistance to the dollar is draining the loonies. In the future, the loonie will sink even more in relation to the greenback, however, it will strengthen against the euro.

The Canadian currency was supported by the increase in the key rate by the Bank of Canada (by 50 bp) recorded last week. In addition, the central bank announced the start of quantitative tightening in response to accelerating inflation.

The Canadian economy got a head start thanks to rising prices for commodities and energy. This contributes to the decisive actions of the Bank of Canada, aimed at normalizing monetary policy. The country's economy is on the winning side compared to other states that are importers of energy and hydrocarbons. In such a situation, the CAD receives tripartite support: from a significant influx of money into the country, from the growth of business activity and the potential tightening of the central bank's monetary policy.

According to experts, galloping inflation is a weighty argument for further tightening of monetary policy by the Bank of Canada. The implementation of such a scenario will strengthen the position of the Canadian dollar in the medium term. In such a situation, experts recommend holding short positions on the USD/CAD pair with a target of 1.2450.