- The Canadian dollar recovered from four-and-a-half year lows against the U.S. dollar on Friday following the release of stronger-than-expected Canadian inflation data, while a selloff in emerging market currencies also lent some support.

USD/CAD ended Friday’s session at 1.1086, having risen to highs of 1.1172 on Thursday, and the strongest level since July 2009. For the week, the pair advanced 1.20%.

The pair is likely to find support at 1.1025 and resistance at 1.1172, Thursday’s high.

The loonie, as the Canadian dollar is also known, recouped some losses after data on Friday showed that the annual rate of Canadian inflation rose slightly more than forecast in December, but remained well below the Bank of Canada’s 2% target.

Statistics Canada said the annual rate of inflation rose to 1.2%, from 0.9% in November, above expectations for an increase of 1.0%, as gasoline prices rose. Core inflation rose 1.3% on a year-over-year basis, accelerating from 1.1% in November, and also beating expectations for a 1.0% gain.

On a monthly basis, consumer prices fell 0.2% from November.

The loonie received an additional boost as investors sold off emerging market currencies and stocks amid expectations that the Federal Reserve will continue to taper stimulus measures. Emerging market currencies have been hard hit since the Fed announced plans last month to begin scaling back its asset purchase program, while worries over political instability and the outlook for growth for some countries also weighed.

The loonie fell to four-and-a-half year lows against the U.S. dollar after the BoC said Wednesday it expects inflation to remain well below target for some time. The bank also left the door open to a rate cut, saying the path of the next rate move would depend on economic data.

The central bank also noted that the recent depreciation in the Canadian dollar would help bolster exports, but added that the currency was still strong.

The BoC maintained the target for the overnight rate at 1%, in a widely anticipated decision.

In the week ahead, Wednesday’s outcome of the Fed’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program. Data from the U.S. on fourth quarter growth and Canada’s monthly GDP report will also be closely watched.

Ahead of the coming week, has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

Thursday, January 30

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Friday, January 31

Canada is to publish the monthly report on GDP growth.

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

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