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Canadian Dollar Forecast: Producer Prices Test October Rate Expectations
The Canadian Dollar's rally faces a test as CIBC questions how far factory-price increases will reach consumers, despite rising Bank of Canada hike risk.
The US Dollar to Canadian Dollar exchange rate was trading at 1.4017 on Friday, close to the 1.40 level after a week of gains for the Canadian currency.

Higher expectations for Canadian interest rates have helped that advance, but CIBC questions whether the producer-price shock warrants the policy response investors increasingly anticipate.

Its mechanical inflation model points to 3.2% CPI inflation in the first quarter of 2027, above its 2.9% house forecast.

The bank has not adopted that model result as its new baseline, even as it acknowledges a growing chance of an October rate rise.

A fresh producer-price increase sharpens the debate
Statistics Canada's September release put annual industrial product inflation at 14.5%, with prices rising 2.0% on the month.

Yet excluding energy and petroleum products, the monthly increase was a much smaller 0.3%.

Economists Helen Lao and Avery Shenfeld find that most of the consumer basket has little statistical connection with producer prices:

"But we find that only a third of the weight of the CPI basket, mainly in energy, food and some household goods as well as some services components such as homeowners' replacement cost and restaurants, show a statistically significant link to producer prices."

Energy can move both measures at the same time, which makes the relationship less useful as an early warning of future inflation.

CIBC cautions: "We don't, of course have the PPI data from here to the end of the year, and energy futures markets are dealing with considerable uncertainty over the prospects for a resolution of the Persian Gulf situation."

The analysis used August producer-price data, so the subsequent September release does not constitute an update to CIBC's model or forecasts.

Weak demand could limit the pass-through to shoppers
CIBC says: "This supply-side approach also could miss much of the downside pressure on inflation coming from the demand side of the Canadian economy."

"Canada has much less labour market tightness, and slower wage growth, than was the case when the Russia-Ukraine war led to an IPPI increase centered on energy and grains. The correlations from that period could therefore overstate the ability of the business sector to pass on cost increases in the current environment."

The bank's house forecast also allows for some easing in energy-supply disruption, an assumption that could lower inflation without requiring an immediate Canadian rate rise.

Lao and Shenfeld argue that the BoC still has time to assess the interaction between oil supply and US trade tensions:

"If a deal to resolve trade tensions is forthcoming, and no resolution is reached on oil supply issues, hiking in December, or even in January, would not represent a significant delay. But if oil prices abate and trade tensions escalate, hiking now would be a step that the central bank would likely regret."

That caution differs from Goldman's decision to bring its expected BoC hike forward to October, following the business and consumer surveys.

CIBC says the BoC's forthcoming Prima forecasting model emphasises firms' pricing decisions and cost pressures, potentially helping to explain Governor Tiff Macklem's greater concern:

"As a result, we see rising odds of a rate hike this month, even with recent core CPI and employment data leaning the other way, based on the impression that the Governor's remarks last weekend were designed to have markets pricing in that outcome."

How much rate support is already in the Canadian Dollar?
Scotiabank's Thursday assessment linked Canadian Dollar strength to a narrowing gap between US and Canadian yields, with markets then pricing 21 basis points of tightening at the 28 October meeting.

That was already close to a full quarter-point rise.

Spectra Markets' Brent Donnelly had warned earlier in the week that the rapid shift towards tighter policy could leave expectations too aggressive, particularly with headline and underlying inflation giving different signals.

Scotiabank's short-term technical view remained bearish for USD/CAD, meaning favourable for the Canadian Dollar, but identified potential congestion around 1.40.

Its strategists wrote: "We look to a near-term range bound between 1.3980 and 1.4080."

Those boundaries describe a technical trading range, not a year-end forecast.

What This Means for USD/CAD
A quarter-point BoC hike alone may offer limited fresh support if investors have already anticipated most of it. A stronger case for further increases could help USD/CAD break below the lower end of Scotiabank's range.

CIBC's doubts become more consequential if policymakers emphasise subdued underlying inflation and weak demand. A hold, or a hike accompanied by cautious guidance, could prompt investors to reassess the interest-rate support behind the Canadian Dollar's recovery.

Investors will need to judge whether the BoC expects the producer-price shock to spread, and how convincing that assessment is when much of the consumer basket follows other influences.

Canadian Dollar Forecast: Goldman Brings October Hike Into Focus After Alberta Vote The Canadian Dollar has gained against the US Dollar as Goldman brings forward its rate call, but Sterling has a tightening story of its own. Goldman Sachs now expects the Bank of Canada to raise interest rates on 28 October, bringing forward its call as rising inflation expectations add to the case for tightening despite weak employment.

The revision comes as the US Dollar to Canadian Dollar exchange rate extends its decline, trading at 1.4054 at 10:41 BST on Wednesday, down 0.09% on the day after a 0.28% fall on Tuesday.

Goldman forecasts a 25-basis-point increase to 2.50% next week.

MUFG also sees an October move becoming more likely, although its argument depends on policymakers prioritising future inflation risks and markets continuing to anticipate a hike.

The political backdrop has also improved following Alberta's vote to remain part of Canada.

Preliminary results showed roughly three-quarters of voters rejecting the proposal to begin a process towards a binding separation referendum.

For currency investors, that reduces an immediate source of uncertainty surrounding the oil-producing province, giving the Canadian Dollar a more favourable backdrop alongside rising interest-rate expectations.

The result does not resolve Canada's trade difficulties, however, and should not be confused with the inflation evidence behind Goldman's revised BoC forecast.

Image: USD/CAD exchange rate 48-hr chart Goldman Changes Its Call After the Surveys The business and consumer surveys have shifted attention towards the risk that higher costs become embedded in pricing decisions.

Goldman economists Megan Peters and Joseph Briggs wrote: "The message from today's surveys was more hawkish than we anticipated, with greater emphasis on improvements in activity, continued resilience, and price pressures than the potential headwinds from rising trade tensions with the US."

The economists also pointed to Governor Tiff Macklem's recent public remarks: "Combined with Governor Macklem's hawkish comments at this past weekend's IMF meetings, we now expect that the BoC will deliver a 25bp hike at next week's October meeting."

Consumers' five-year inflation expectations rose to 3.9% from 3.4%, while roughly half the businesses surveyed intended to pass some or all of their higher energy and tariff costs to customers.

That combination gives the BoC reason to worry about inflation persisting even without a strong jobs recovery.

But the Bank of Canada's survey findings carry an important timing qualification: around three-quarters of business interviews preceded the breakdown in US-Canada trade talks.

Responses collected after the breakdown showed weaker confidence and investment intentions alongside higher inflation expectations, leaving policymakers facing both growth and price risks.

The caution in the earlier ING and CIBC assessment of Canada's outlook therefore remains relevant, even as Goldman puts greater weight on the surveys' inflation warning.

An October Hike Would Leave December Open Goldman has also accelerated its expected second increase, but stops short of forecasting consecutive hikes.

Peters and Briggs wrote: "We are also pulling forward our forecast for a final 25bp hike to 2.75% (the center of the BoC's neutral rate range) to January 2027."

"Although a final hike in December remains a possibility, we believe that a still benign inflation backdrop and more visible headwinds from US trade tensions support a more gradual pace of policy normalization."

MUFG identifies a route to a faster repricing, rather than making the same firm forecast.

Senior currency analyst Lee Hardman cautioned: "However, it is not a done deal given the recent softer economic data flow from Canada including the second consecutive month of heavy job losses in September."

"A decision to raise rates this month would then encourage speculation that they could follow that up quickly with a second hike before the end of this year in December providing more support for the Canadian dollar."

Much of the initial adjustment has already happened.

Hardman recorded the shift on Tuesday: "There are currently around 21bps of hikes priced in compared to only 9bps at the end of last week."

Higher expected Canadian rates can support the currency by improving its prospective yield, but delivering an increase that investors largely anticipate may offer less additional support than signalling another soon afterwards.

Why GBP/CAD Faces a Different Test The Pound-to-Canadian Dollar exchange rate was up 0.05% at 1.8821 at the same time on Wednesday, illustrating Sterling's relative resilience despite the Canadian currency's gains against the US Dollar.

Wednesday's UK inflation release showed annual CPI rising to 3.5% from 3.1%, adding pressure on the Bank of England after stronger labour-market figures.

Before that release, Hardman wrote: "We continue to expect the BoE to hike rates next month and deliver a second hike early next year."

"A view that is already well priced into the UK rate market which is anticipating even more tightening and has almost three hikes priced in by March of next year."

MUFG's support for Sterling also depends on the forthcoming UK Budget preserving confidence in fiscal consolidation.

Image: Pound to Canadian Dollar rate chart for last 2 days. What This Means for USD/CAD and GBP/CAD USD/CAD's decline leaves the Canadian Dollar approaching next week's decision with substantial tightening already anticipated. A hike accompanied by encouragement for a December follow-up could extend that strength, whereas an emphasis on trade damage and patience would fit Goldman's slower January timetable.

For GBP/CAD, Canadian tightening alone may struggle to dislodge Sterling while a November BoE increase remains expected. A more urgent Canadian policy message, or UK Budget measures that undermine confidence, would give the Canadian Dollar a clearer advantage.

A BoC hold would challenge the rate expectations supporting the recent Canadian Dollar recovery and could lift both pairs. The employment weakness highlighted by MUFG keeps that risk alive ahead of 28 October.

The trading week is just getting underway, and one of the most notable developments in the currency market has been the renewed strength of the Canadian dollar. This can be seen in the recent performance of USD/CAD, which has now declined for three consecutive sessions and is down approximately 1.0% over the period, highlighting the CAD's growing strength against the U.S. dollar.

For now, selling pressure around the pair remains relevant even after the release of Canadian inflation data. This is largely because the Canadian bond market has maintained relatively stable yields, helping to support demand for Canadian dollar-denominated assets. At the same time, the relationship between oil prices and the CAD has begun to regain importance in recent sessions. As long as these factors remain in place and the U.S. dollar continues to move through a corrective phase, selling pressure on USD/CAD could remain an important theme in the days ahead.

Canada Inflation Day Arrives
Canada's latest inflation figures were released during today's session. Overall, the main core inflation measures came in slightly below market expectations. The Trimmed CPI y/y, which excludes more volatile components, was reported at 1.8% versus an expected 1.9%, while Median CPI y/y, a measure used to track underlying inflation trends, came in at 1.9% compared to the 2.0% forecast.

However, annual CPI remains near 3.1%, highlighting that inflation pressures are still relatively elevated. Although some indicators came in below expectations, the data does not yet point to a sufficiently consistent slowdown that would justify a significantly more dovish stance from the Bank of Canada in the coming months. Current inflation levels also remain well above the lows seen in February, when annual CPI was close to 1.8%.

Source: TradingEconomics

This remains important because, even after the inflation release, Canadian 10-year government bond yields have shown little sign of weakness. Instead, yields continue to develop near the 4.0% area, maintaining a relatively stable environment that continues to support the attractiveness of Canadian dollar-denominated investments.

At the same time, U.S. dollar strength has begun to moderate. The DXY, which measures the dollar against its main peers, continues to trade near the 102-point area without being able to establish a sustained bullish trend. As a result, CAD has found room to recover part of the ground lost in previous weeks.

Source: TradingEconomics

Taking all of this into account, it is important to note that while inflation data did not surprise to the upside, it also failed to show a meaningful slowdown in price pressures. This has helped preserve stability in Canada's bond market and, combined with the recent loss of momentum in the U.S. dollar, has allowed the Canadian dollar to regain relevance in the short term. As long as this dynamic remains in place, selling pressure around USD/CAD could continue to be a dominant theme.

Is the Relationship with Oil Becoming Relevant Again?

Another important factor to consider is the close relationship between the Canadian economy and the energy sector. Canada remains one of the world's largest oil producers and exporters, meaning that significant moves in crude oil prices often have an important impact on demand for the Canadian dollar. As oil prices rise, export revenues tend to increase, supporting stronger capital inflows and helping strengthen the CAD in the short term.

Over recent sessions, this relationship has begun to regain relevance. The CXY, an index that measures the strength of the Canadian dollar, continues to advance while WTI crude oil maintains a bullish trend that has pushed prices increasingly closer to the $100 per barrel area.

The most interesting element emerges when looking at the short-term correlation between both markets. The correlation coefficient currently stands near 0.56, reflecting a meaningful positive relationship between recent movements in oil and the Canadian dollar. This suggests that rising crude prices may be providing additional support to CAD’s recent recovery. It is important to remember that correlation can change over time.

Source: TVC, StoneX, Tradingview

This relationship is particularly important because it had weakened during previous months. However, the recent strength in oil prices appears to be bringing it back into focus and may help explain part of the resilience currently being displayed by the Canadian dollar against the USD. As long as oil remains in an upward trend and the positive correlation persists, this factor could continue supporting downside pressure on USD/CAD in the coming sessions.

USD/CAD Technical Forecast

Source: StoneX, Tradingview

The bearish bias is regaining relevance: Although USD/CAD attempted to develop a short-term bullish trendline in recent weeks, that structure gradually lost momentum as price approached highs not seen for several months. A renewed bearish bias is now beginning to emerge on the chart. However, it is important to remember that a lack of direction remains a key characteristic of the market and, unless important support levels are broken, a broader period of consolidation could still develop over the coming weeks.

 
MACD: The MACD histogram continues to fluctuate very close to the 0 neutral line, reflecting a relatively balanced dynamic in short-term moving-average momentum. This reading continues to support the possibility that a phase of indecision remains relevant on the chart.

 
RSI: A similar picture can be observed in the RSI, which continues to trade near the 50 neutral level. This behavior reflects a relatively balanced momentum environment and suggests that the recent lack of direction remains an important feature of price action.

 
Key Levels:

1.42321 – Key Resistance: A major high observed over recent months and the most important upside barrier on the chart. A move back toward this level could restore relevance to the bullish bias and support a more consistent bullish structure.

 
1.41606 – Near-Term Barrier: A level that aligns with significant retracement zones observed several weeks ago and could become the main area to monitor in the event of short-term bullish corrections.

 
1.39959 – Critical Support: The last major support barrier on the daily chart and a level that coincides with the 50-period simple moving average. Sustained moves below this area could reinforce the bearish bias and open the door to a more established downtrend in the weeks ahead.

 
Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25

USDCAD has been one of the cleaner charts for me lately. The pair has pushed back to its 2026 highs, and that move tells me something important.

The recovery from the August 26 low that I've been tracking for a few weeks now looks impulsive rather than corrective. Impulses are five-wave patterns, and when I count this rise, I still can't see all five waves. That suggests the move isn't complete yet.

The pair is trading around 1.4211, right at the 1.4200-1.4125 support zone. If the current dip is just a retracement within the uptrend, this is where I'd expect buyers to step back in for a potential new rebound.

The key level for me is 1.4000. As long as USDCAD stays above it, I think the structure favors another leg higher once the pullback is complete. A drop below 1.4000 would make me rethink the count.

I know pullbacks can feel uncomfortable when you're expecting higher prices, but they are a normal part of a developing impulse. Markets rarely move in a straight line, and these pauses often give the trend the energy it needs for the next push.

Also keep in mind that US CPI is out today, October 14, at 14:30 CEST. The release could easily push the pair through the support zone or bounce it straight off it, so I'd expect volatility either way.

What I like about this setup is that it gives me clear reference points. The support zone tells me where a pullback could end, and the 1.4000 level tells me when I would be wrong. For me, that kind of clarity is often more valuable than trying to predict every small swing.

Key levels:

Current price: ~1.4211.Pullback support zone: 1.4200-1.4125.Key bullish level: 1.4000.Get Full Access To Our Premium Elliott Wave Analysis For 14 Days. Click here.

The USD/CAD rally is showing signs of exhaustion after five consecutive weeks of Canadian dollar weakness, despite deteriorating employment data and fading BoC rate hike expectations. Rising speculative CAD longs also suggest some traders are positioning for a recovery. Yet with the Australian dollar and British pound showing greater strength against the Loonie, CAD bears may find better opportunities elsewhere.

View related analysis:

Swissy Attracts Safe-Haven Bets, AUD Shorts Surge to Record High| COT report AUD/USD Q4 Outlook: RBA and Fed Hikes Set the Tone Gold Bears Approach Major Support, USD/CHF Eyes Reversal How to Read the COT Report to Track Forex Market Sentiment USD/CAD Pullback Risks Build as AUD and GBP Target Further CAD Weakness A weak Canadian employment report weighed further on BoC hike expectations, although they were already looking pretty bleak. The OIS curve peaked on September 11 as traders spent the preceding weeks pricing in 75bp of hikes over the following year. Since then, expectations have shifted firmly lower as markets increasingly expect the BoC to keep rates at 2.25% for longer and delay its tightening cycle further — assuming the case for additional hikes does not fade altogether.

The contrast with the US is becoming increasingly clear. The 3-month US OIS (blue) remains anchored near the Fed target, suggesting traders are not banking on an imminent hike, although the 6-month rate is curling higher to reveal a slight hawkish bias. Meanwhile, Canada’s 3- and 6-month OIS rates (green) are moving back towards the BoC cash rate as traders unwind previous hike bets. That relative shift should be supportive of USD/CAD, although its failure to extend the rally despite the widening policy divergence warrants a closer look.

Source: LSEG

Canadian Employment Falls for a Second Month Employment contracted for a second month, with September’s 68.3k decline taking the two-month total to around 110k jobs lost. Just over half of the latest decline came from full-time employment, while the unemployment rate rose to 6.5%. That remains just below its long-term average of 6.58%, but is now comfortably above its five-year average of 6%.

USD/CAD Futures Positioning | COT Report What makes the Canadian dollar futures selloff interesting over the past few weeks is that it has coincided with a sharp rise in gross longs. The combined bullish exposure of large speculators and asset managers is 189k contracts, although rising shorts have kept both groups net short overall.

However, note that a small doji formed on the CAD futures chart despite weak employment data and fading BoC hike expectations. If a market cannot fall on bad news, it stands a greater chance of rising on good news.

That said, there is little in the way of market-moving data on Canada’s economic calendar this week, so the next move may come down to US data, Kevin Warsh’s Fed speech or comments from BoC Governor Macklem on Friday.

Source: CFTC (COT), CME, LSEG

USD/CAD Drivers to Watch This Week Manufacturing/wholesale activity data for confirmation that domestic momentum is weakening further. Oil prices, because Canada is a major crude exporter and CAD can get conflicting signals from weaker domestic growth versus higher oil. US CPI and retail sales, because those can move USD/CAD heavily through the USD side and alter relative Fed/BoC pricing. Any comments from Governor Macklem that addresses whether the labour deterioration changes the Bank’s assessment of excess demand and inflation persistence.

This content was created by an affiliate of FOREX.com and represents the views and opinions of the author/speakers, not the views and opinions of FOREX.com, StoneX Group Inc., or its subsidiaries. The content has not been independently reviewed by FOREX.com.

Canadian Dollar Mixed Against FX Majors With a stretched US dollar and mixed performance across FX majors, two of the better opportunities for CAD traders may be against the Australian dollar and British pound.

Source: ICE, TradingView

The weekly chart shows a small doji on CAD/USD after a five-week selloff. Given it closed flat despite weak data from Canada, it is a minor sign of strength. USD/CAD bulls may want to tread with caution, as the risk of a pullback could be building. The Australian dollar tested parity against the Canadian dollar last month, and it looks like it wants to have another go. The CAD/AUD chart shows a bearish consolidation within an established downtrend, and with a shooting star candle forming two weeks ago, perhaps we’ve seen the swing high — and a bearish breakout could be pending. The British pound is also performing well against the Loonie, with GBP/CAD having broken out of a bullish retracement channel two weeks ago.

Canadian Dollar buying could fuel a rebound against the US Dollar, but JPMorgan's trading desk doubts the recovery has lasting economic support. JPMorgan's trading desk has spotted a shift towards Canadian Dollar buying, but remains unconvinced that a rebound would develop into sustained strength against the US Dollar.

Its 6 October commentary describes clients selling USD/CAD across all customer categories, a change from the persistent selling of the Canadian currency seen recently.

By Wednesday afternoon, however, USD/CAD had risen to 1.4259, reversing most of Tuesday's decline and leaving the Loonie's recovery looking fragile.

The desk writes: "While positioning has become increasingly stretched and leaves room for a squeeze lower in USDCAD, I still struggle to find a compelling fundamental catalyst for sustained CAD outperformance."

When investors have accumulated bets against the Canadian Dollar, even a modest improvement in sentiment can prompt them to buy it back to close those positions.

That buying can push USD/CAD lower without a corresponding improvement in Canada's growth prospects or expected investment returns.

The breadth of the change across JPMorgan's clients makes it worth watching, although these are the desk's own flows rather than evidence that the whole market has changed direction.

Oil price support is beginning to fade JPMorgan writes: "With oil gradually pulling back from its highs and traffic through the Middle East normalising somewhat, some of the recent support for the loonie is starting to fade."

For an energy exporter such as Canada, higher oil prices can improve export revenues and support the currency.

An easing of the supply disruption can therefore have mixed consequences for the Loonie, helping global confidence while reducing the energy-price advantage enjoyed by Canadian producers.

The desk consequently still sees USD/CAD risks tilted upwards, even while allowing for a temporary fall as crowded positions unwind.

That caution offers a nearer-term counterpoint to the sustained recovery envisaged in our coverage of Crédit Agricole's Canadian Dollar outlook, where eventual relief from US rates supports the currency further ahead.

Canada's recovery still needs to withstand trade pressures In its September policy decision, the Bank of Canada described a broadening economic recovery, with stronger consumption and gains in exports and business investment.

But it also warned that new US tariffs and threats of further action put the sustainability of that recovery at risk, while subdued labour demand pointed to spare capacity in the economy.

The central bank held its policy rate at 2.25%, balancing a more uncertain growth outlook against the danger that elevated energy costs would spread into other prices.

For the currency, stronger Canadian activity would offer a firmer basis for fresh investment than the closing of existing bearish bets.

The Bank of Canada's next decision and updated economic projections on 28 October will assess whether the rebound is holding up as those trade risks feed through.

Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.

A stronger Canadian Dollar features in Crédit Agricole's forecasts, with USD/CAD falling to 1.34 by June 2027 and 1.32 that December. Crédit Agricole forecasts a sustained Canadian Dollar recovery through 2027, even as its broader outlook allows for US borrowing costs to rise further first.

The bank puts USD/CAD at 1.38 in December 2026, 1.34 in June 2027 and 1.32 in December 2027.

A falling rate means a stronger Canadian Dollar, with fewer Canadian Dollars required to buy one US Dollar.

US yields remain an obstacle before 2027 relief Crédit Agricole's wider US outlook cautions against assuming an immediate collapse in Dollar support:

"We expect Treasury yields to continue rising into early 2027. The rates market has priced in a more restrictive policy path, reflecting persistent inflation pressures and growing expectations that policymakers may need to tighten in the months ahead. Inflation has proven more resilient than expected, while recent increases in energy prices risk creating additional upside pressure on headline inflation in the coming months."

The bank also warns:

"Front-end yields are likely to remain particularly sensitive to incoming inflation data and Fed communication over the coming quarters."

Crédit Agricole's currency path therefore allows for Canadian Dollar gains even while US yields remain a headwind.

Later in 2027, its broader currency analysis identifies a potential change:

"The US fiscal outlook could worsen further, and servicing US debt could start dominating the fiscal (and monetary) policies once US inflation subsides in 2027. We expect the Fed to cut rates in Q427, in a blow to the USD rate appeal."

At the time of writing, USD/CAD traded near 1.4249, down 0.11% on Tuesday after rising 2.77% in September.

Reaching 1.32 would require the pair to fall approximately 7.4% from that level, making this a substantial recovery forecast.

Canadian growth and employment face an early test Crédit Agricole expects Canadian economic growth to strengthen from 1.5% in 2026 to 1.8% in 2027, with annual inflation averaging 2.1% and 2.0%, respectively.

Tuesday's trade figures provided some encouragement: Canada's merchandise surplus widened to C$4.2 billion in August from a revised C$787 million in July.

Statistics Canada noted that tariff announcements can prompt importers to bring shipments forward before the duties take effect.

The next major domestic test is the September employment report on 9 October, following a setback in hiring.

Statistics Canada described August's weakness plainly:

"Employment declined by 42,000 (-0.2%) in August and the employment rate fell 0.1 percentage points to 60.8%. The unemployment rate was unchanged at 6.4%."

The labour-market risk also features in our Pound-to-Canadian Dollar outlook.

Another employment decline would make the recovery harder to establish, particularly if it weakened expectations for Canadian interest rates relative to US rates.

Friday's jobs figures will test whether Canada's economy can begin supplying its own support before that forecast reduction in US rates arrives.

The Canadian dollar continues to face one of its most challenging environments in recent months when it comes to maintaining strength against the U.S. dollar. The weakness of the Canadian currency is clearly reflected in USD/CAD, which has now recorded nine consecutive bullish sessions and gained more than 1.7% during that period. This price action highlights that buying pressure remains firmly in control of the pair in the short term.

For now, the primary driver behind this move continues to be the strength of the U.S. bond market, which remains supportive of dollar demand. As long as this backdrop persists, and even if it proves resilient to tomorrow's U.S. employment data release, buying pressure around USD/CAD could remain an important feature of the market in the sessions ahead.

Can Anything Slow the Bond Market Rally?
As trading continues, a similar trend remains visible across both Canadian and U.S. bond markets. Ten-year government bond yields in both countries have moved higher in recent weeks, although the gap between them remains substantial.

While U.S. 10-year Treasury yields continue to trade near 5.2%, Canadian government bond yields remain close to the 4.0% area. This spread continues to provide a meaningful advantage for U.S. assets, particularly given that Treasury bonds are perceived as lower-risk investments while also offering higher returns. As a result, U.S. dollar-denominated assets continue to enjoy a stronger relative appeal among international investors.

Source: TradingEconomics

This dynamic has been a consistent theme for several weeks and helps explain part of the weakness observed in the Canadian dollar. Even so, it is worth noting that this trend could begin to shift depending on expectations surrounding the Federal Reserve, which is precisely why tomorrow's NFP release has become such an important event.

The employment report will provide a clearer picture of labor market conditions during September and could directly influence expectations for future U.S. monetary policy. Markets currently expect approximately 90,000 jobs to have been added, compared with 162,000 in the previous report. This anticipated slowdown is important because it could begin to reduce the scope for a more aggressive Federal Reserve.

In fact, if payroll growth comes in below expectations, it could further reduce the likelihood of additional rate hikes over the coming months. This cautious outlook is already beginning to appear in market pricing, where current probabilities suggest nearly a 70% chance that interest rates will remain unchanged at the October meeting. Nevertheless, those expectations remain highly sensitive to tomorrow's employment data.

Source: CMEGROUP

With all of this in mind, the NFP release stands out as one of the most important short-term events for USD/CAD. If the report confirms a slowdown in labor market conditions and reinforces the idea of a more patient Federal Reserve, some of the recent strength in U.S. Treasury yields could begin to moderate, potentially limiting further gains in the U.S. dollar. Under that scenario, a more balanced environment could begin to develop around USD/CAD.

That said, the opposite outcome remains equally important. If employment data once again points to a resilient U.S. economy, it could continue to support expectations of restrictive monetary policy for longer. In that case, both Treasury yields and the U.S. dollar could maintain part of their current strength, allowing the buying pressure that has characterized USD/CAD in recent weeks to remain a relevant theme.

USD/CAD Technical Forecast

Source: StoneX, Tradingview

The bullish trend remains dominant: USD/CAD price action continues to reflect a clearly dominant bullish bias. This dynamic has helped establish a short-term uptrend that continues to guide most of the pair's recent movements. However, it is also important to note that the market is approaching key resistance levels and that the recent advance has been relatively rapid, a situation that could begin to signal overstretched bullish momentum and leave room for temporary corrective pullbacks.

 
MACD: The MACD histogram continues to trade above the 0 neutral line, reflecting that the average strength of short-term moving averages remains supportive of a bullish outlook. As long as this behavior persists, buying pressure may continue to dominate the chart.

 
RSI: A similar picture can be observed in the RSI, which continues to develop above the 50 neutral level. However, the indicator has also moved beyond the 70 overbought threshold, a signal that is often associated with excessive recent buying momentum and could open the door to short-term corrective declines.

 
Key Levels:

1.42348 – Key Resistance: The last major barrier observed in recent months and a high not seen since July. A sustained move above this level would not only reinforce the dominance of the current bullish bias but could also confirm a more consistent higher-high structure on the daily chart. Such a scenario could pave the way for a broader and more meaningful uptrend in the weeks ahead.

 
1.41564 – Near-Term Barrier: A significant retracement level observed several weeks ago that now stands as the closest support reference to monitor. This area could become the primary level to watch in the event of short-term corrective pullbacks.

 
1.40526 – Critical Support: An important equilibrium zone observed during previous weeks that remains the most relevant downside barrier within the pair's recent price action. A move toward this level could begin to signal a loss of directional momentum, place the current uptrend under pressure, and open the door to a broader phase of indecision over the coming weeks.

 
Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25

A new trading week is underway, and the Canadian dollar continues to show signs of weakening momentum. This can be seen in recent USD/CAD price action, with the pair gaining nearly 0.7% over the last four trading sessions. Buying pressure around the pair has been supported primarily by two factors: expectations of a more aggressive Federal Reserve and an ongoing trade dispute that still shows few signs of resolution. Both developments appear to be weighing on the Canadian dollar's relative attractiveness and, as long as these conditions remain in place, buying pressure around USD/CAD could continue to play a relevant role in the sessions ahead.

Is the USD Becoming a Threat?
Since last week, expectations of a more aggressive Federal Reserve have continued to gain traction. This perception is largely driven by persistent inflationary pressures in the United States, a backdrop that could justify additional rate increases over the coming months. In fact, CME Group's probability tracker still assigns more than a 50% chance that interest rates will rise another 0.25% to the 4.25% area at the October 28 meeting.

The situation looks somewhat different at the Bank of Canada. Although policymakers continue to acknowledge inflation risks, there have not yet been equally strong signals pointing toward a more aggressive policy stance. Market expectations for the October 28 meeting remain broadly split between another rate hike and an unchanged decision, highlighting a greater degree of uncertainty surrounding the bank's next move. As a result, the Federal Reserve continues to stand out as the institution with the greatest potential to maintain a restrictive monetary policy over the coming months.

This divergence also has important implications for bond markets. Although 10-year bond yields in both countries have moved higher recently, the yield differential continues to favor the United States. While U.S. Treasury yields remain around the 5.00% area, Canadian bond yields continue to trade below 4.00%. This gap remains important because it supports the relative attractiveness of U.S. assets and could widen further if the Federal Reserve maintains a more aggressive stance than the Bank of Canada.

Source: TradingEconomics

This advantage is already beginning to show up in the performance of the U.S. dollar. Recent movements in the DXY, the index that measures the dollar against its main rivals, continue to reflect strength above the 100-point level. This suggests that demand for the U.S. dollar remains well supported, backed both by the appeal of the bond market and expectations of a more restrictive monetary policy. As a consequence, the Canadian dollar continues to struggle to regain lost ground consistently.

Source: TradingEconomics

Taking all of this into account, the difference in outlook between the two central banks continues to favor the U.S. dollar. As long as markets continue to price in a more aggressive Federal Reserve than the Bank of Canada, capital flows may continue to favor USD-denominated assets and limit a stronger recovery in the Canadian dollar. Under this scenario, buying pressure around USD/CAD could remain relevant during the coming sessions.

Is There Still No Progress in the Trade Dispute?
Since September 15, when revised 50% tariffs on selected Canadian products came into effect, there have been no significant developments pointing toward a quick resolution of the trade conflict. In addition, beginning on September 29, the United States may start applying import restrictions on products from sectors such as automobiles and dairy. On the Canadian side, the countermeasures announced on September 8 remain in place, including tariffs ranging from 15% to 50% on U.S. goods. So far, both countries have maintained firm positions, and negotiations have failed to alter the overall direction of the dispute.

This situation remains highly relevant for the Canadian dollar because the currency has repeatedly shown weakness whenever trade tensions escalate. Moreover, the conflict directly affects an economy where more than 70% of exports are destined for the United States, creating uncertainty around future growth prospects. Until more meaningful diplomatic progress emerges, caution is likely to remain a dominant theme around the CAD and could continue supporting buying pressure in USD/CAD over the coming weeks.

USD/CAD Technical Forecast

Source: StoneX, Tradingview

Bullish momentum starts to emerge: Over recent months, USD/CAD had been developing a medium-term downtrend that became one of the chart's most important technical structures. However, the recent recovery has already generated a meaningful break above this trendline. If buying pressure remains in place over the coming sessions, a more established bullish structure could begin to emerge in the short term.

 
RSI: The RSI remains above the 50 neutral level, a reading that reflects growing bullish momentum within the chart. As long as this dynamic remains intact, the bullish bias may continue strengthening over the coming sessions.

 
MACD: A similar picture can be observed in the MACD, whose histogram continues to trade above the 0 neutral line. This reading suggests that short-term moving averages continue to favor bullish price action and supports the possibility that the current upward bias remains relevant.

 
Key Levels:

1.40504 – Key Resistance: The last major upside barrier on the chart, coinciding with the most relevant 61.8% Fibonacci retracement level. Price action that manages to consolidate above this area could signal stronger bullish control and open the door to a more developed upward structure in the weeks ahead.

 
1.39406 – Near-Term Barrier: A level that coincides with the 50-period moving average and the 38.2% Fibonacci retracement zone. It remains the most important reference to monitor in the event of short-term bearish corrections.

 
1.38378 – Critical Support: This level represents the most important downside barrier on the chart as it coincides with the 200-period moving average. A move back toward this area could undermine the credibility of the recent recovery, revive concerns about a lack of direction, and favor the development of a broader consolidation range.

 
Written by Julian Pineda, CFA, CMT – Market Analyst

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Summary:

USD/CAD rose toward 1.3870 on Friday, extending its advance for a third consecutive session as the Canadian Dollar weakened alongside falling oil prices. US CPI inflation held at 3.4% year over year in August, while monthly core CPI rose a stronger-than-expected 0.3%. WTI crude oil fell more than 4% below $100, adding pressure on the oil-sensitive Canadian Dollar. USD/CAD rose toward 1.3870 on Friday after briefly reaching 1.3882 following the release of the latest US Consumer Price Index (CPI) report. The currency pair is heading for a third consecutive session of gains as falling oil prices weigh on the Canadian Dollar (CAD), while the US Dollar struggled to hold its initial post-CPI advance.

US headline inflation remained at 3.4% year over year in August, matching market expectations and unchanged from July. On a monthly basis, the Consumer Price Index increased 0.4%, accelerating from the previous 0.1% increase. The underlying inflation figures were slightly firmer. Core CPI rose 0.3% month over month, above the 0.2% forecast, although annual core inflation eased to 2.4% from 2.5%.

US Dollar Struggles to Hold Gains After CPI The US Dollar initially strengthened after the CPI report as markets reacted to the stronger-than-expected monthly core inflation reading. However, the move quickly lost momentum.

Annual headline inflation remained unchanged at 3.4%, while annual core inflation continued to moderate. That reduced the case for a significantly more hawkish repricing of Federal Reserve interest-rate expectations.

For USD/CAD, the result left the US Dollar providing only part of Friday’s upside. Weakness in the Canadian Dollar has become the more important driver of the pair.

Why Is the Canadian Dollar Falling Today? The Canadian Dollar is falling today as crude oil prices retreat sharply, weakening one of the currency’s traditional sources of support. West Texas Intermediate (WTI) crude fell more than 4% to around $95.90 per barrel, dropping back below the closely watched $100 level after recently reaching a four-month high.

The decline in oil has weighed heavily on the Canadian Dollar, given Canada’s position as a major crude exporter. That relationship has helped USD/CAD continue higher even as the US Dollar surrendered part of its immediate post-CPI gains.

Oil Price Falls Below $100, Weighing on Canadian Dollar Oil has become a particularly important catalyst for the USD/CAD exchange rate following the sharp volatility in energy markets. WTI crude fell approximately 4.6% on Friday after encountering strong selling pressure above $100.

Lower oil prices can weigh on Canada’s trade outlook and reduce demand for the Canadian Dollar, making sharp movements in crude particularly relevant for USD/CAD. The latest oil selloff therefore leaves the Loonie under pressure despite the relatively limited reaction of the broader US Dollar to the inflation report.

US CPI Keeps Fed Rate Outlook in Focus Friday’s US CPI report provided a mixed inflation signal ahead of the Federal Reserve’s September policy meeting. Headline CPI increased 0.4% month over month and remained at 3.4% annually. Meanwhile, the stronger 0.3% monthly core reading suggests underlying inflation pressures have not disappeared.

However, annual core inflation slowing to 2.4% prevents the report from delivering an entirely hawkish signal. The data follows Thursday’s stronger producer inflation figures and last week’s resilient US employment report, leaving the Fed interest-rate outlook a key driver for the US Dollar heading into next week’s decision.

USD/CAD Forecast: Oil Weakness Keeps 1.3900 in Focus The near-term USD/CAD forecast remains supported around 1.3870, primarily as falling oil prices continue to pressure the Canadian Dollar. The pair reached 1.3882 following the CPI release, putting the 1.3900 area within reach if Canadian Dollar weakness continues.

However, the US Dollar’s inability to hold its initial CPI-driven gains could limit the upside. A recovery in crude oil could also provide some relief for the Loonie.

For now, oil prices and shifting Fed rate expectations remain the main catalysts for USD/CAD, with the pair maintaining its recent upward momentum near 1.3870.

Why is USD/CAD rising today?

USD/CAD is rising as the Canadian Dollar weakens alongside falling oil prices. The pair also briefly benefited from a stronger US Dollar following the August CPI report.

Why is the Canadian Dollar falling today?

The Canadian Dollar is under pressure after WTI crude oil fell more than 4% and dropped below $100 per barrel. Canada is a major oil exporter, making the Loonie sensitive to large movements in crude prices.

How does US CPI affect USD/CAD?

Higher-than-expected US inflation can support the US Dollar if it increases expectations for tighter Federal Reserve policy. However, USD/CAD is also heavily influenced by Canadian economic conditions and oil prices.

The Canadian Dollar (CAD) trades sideways at around 1.3810 against the US Dollar (USD) during the European trading session on Thursday. The Loonie pair consolidates as investors await the United States (US) Producer Price Index (PPI) data for August, which will be published at 12:30 GMT.

Investors will closely track the US PPI data as it is expected to influence the overall inflation outlook and eventually Federal Reserve (Fed) interest rate expectations.

According to estimates, the US headline inflation at the factory level accelerated to 5.3% Year-on-Year (YoY) from 4.7% in July. The core PPI – which excludes volatile food and energy items – is also expected to arrive higher at 4.6% YoY against the previous reading of 4.2%.

Signs of price pressures accelerating at the producer level would prompt expectations of interest rate hikes by the Fed in the near term.

Currently, the CME FedWatch tool shows the odds of the Fed hiking interest rates at the policy meeting next week are 61.2%.

Going forward, investors will also focus on the US Consumer Price Index (CPI) data for August, which will be released on Friday.

USD/CAD Technical Analysis

In the daily chart, USD/CAD trades at 1.3808, holding below the 20-day Exponential Moving Average (EMA) at 1.3854 and just under the 61.8% Fibonacci retracement at 1.3818, which together cap the upside and reinforce a mildly bearish near-term tone.

The Relative Strength Index (RSI) at 41.7 hovers below the neutral 50 line, suggesting weak upside momentum as the pair consolidates beneath these clustered resistances.

On the topside, immediate resistance is aligned at the 61.8% retracement at 1.3818, followed by the 20-day EMA at 1.3854, with further barriers at the 50% retracement near 1.3901 and then 1.3983 and 1.4085, corresponding to the 38.2% and 23.6% retracement levels. On the downside, initial support emerges at the 78.6% retracement around 1.3701, ahead of a more significant floor at the 100% retracement near 1.3551, where buyers would be expected to show stronger interest if the decline extends.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Economic Indicator Producer Price Index (YoY) The Producer Price Index released by the Bureau of Labor statistics, Department of Labor measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. Generally speaking, a high reading is seen as positive (or bullish) for the USD, whereas a low reading is seen as negative (or bearish).

Read more.

TL;DR: The Bank of Canada’s Wednesday hold at 2.25% is fully priced, but economist consensus (first hike in Q4 2027) and market pricing (roughly 1.76 hikes by March 2027) disagree sharply on what comes next — making the statement’s tone, not the decision itself, the real driver for USD/CAD.

Everyone Expects a Hold. Almost Nobody Agrees on What Happens Next The Bank of Canada is expected to leave its rate at 2.25% on Wednesday. All 35 economists surveyed by Reuters forecast a hold, and market pricing agrees. If that’s all traders cared about, this would be a low-drama meeting. But the agreement ends almost immediately after Wednesday.

The Reuters consensus sees the first BoC hike only in Q4 2027. Among economists who provided a forecast, fewer than half expect even one increase by the end of Q2 2027. CIBC’s Avery Shenfeld describes the Bank as being in a “watchful-waiting stance,” with inflation concerns roughly balanced by growth risks from the Canada-US trade conflict.

Markets aren’t waiting nearly that long. OIS pricing as of Sept. 1 embeds roughly 1.76 quarter-point hikes by March 3, 2027, with that meeting carrying around 76.8% marginal probability of an increase. In other words, the market’s center of gravity for tighter policy sits several quarters ahead of economist consensus.

That’s the real story heading into Wednesday: the hold is priced; the timing of the next hike is not.

Survey Says Late 2027. Some Banks Say October. There’s an important reason not to treat the survey-market gap as a simple contest over who has the better forecast. Each economist in a Reuters poll submits a single path they consider most likely. Markets have to price every plausible path at once. A smaller probability of something much more hawkish can therefore drag OIS pricing forward even if most forecasters still expect a long pause.

National Bank and Scotiabank show exactly what that hawkish scenario looks like. Both expect the BoC to hike to 2.50% in October and again to 2.75% in December — more than a year ahead of the Reuters consensus.

OIS doesn’t say those banks are right. October remains a minority outcome. But it says the possibility is real enough to matter. So there are really three positions rather than two: most economists expect the BoC to wait until late 2027, National Bank and Scotia see tightening beginning this autumn, and markets sit somewhere in between — pricing an earlier move than consensus without fully embracing the aggressive 2026 path.

Two New Forces May Be Pulling Pricing Forward The difference between probability-weighted market pricing and single-path forecasts is the most defensible explanation for the gap. But the timing also raises two interesting questions.

The Reuters poll closed on Aug. 28, before renewed US-Iran fighting pushed Brent back above $90. Canada is an oil exporter, so higher crude can support CAD directly, while persistent energy inflation could also make the BoC less comfortable leaving rates unchanged for an extended period. It’s plausible this week’s oil shock has pushed Canadian rate expectations higher — we can’t prove that without a comparable OIS snapshot from before the escalation, so it should remain a hypothesis rather than a conclusion.

US rates are another possibility. Treasury yields have surged after Warsh’s Jackson Hole speech, and the US 10-year is now challenging 4.8%. Canadian OIS could be participating in a broader North American rates repricing rather than reflecting a purely domestic rethink. That distinction will become clearer if Canadian pricing starts moving independently after Wednesday.

With No New Forecasts, Watch Every Change in Tone There’s no new Monetary Policy Report this week — the next MPR comes Oct. 28. That strips away one of the usual numerical signals and leaves statement language and Governor Macklem’s press conference with more work to do.

A more hawkish Bank would give OIS pricing greater credibility. Markets will listen for less concern about trade-related downside risk, greater emphasis on inflation near the top of the 1–3% target band, or any suggestion that recent economic resilience has reduced the need for caution.

A more dovish tone would strengthen economist consensus. If the BoC continues emphasizing weak demand, trade uncertainty, and temporary or externally driven price pressure, the argument for waiting well into 2027 would become easier to defend.

Governor Macklem and Senior Deputy Governor Rogers speak at 10:30 ET, and with the rate itself almost predetermined, changes in emphasis — or conspicuous omissions from July’s message — could drive the Canadian Dollar reaction.

Friday Tests Both Sides of USD/CAD Wednesday may not even be the most important day for the pair this week. Canada and the US both release employment reports Friday, Sept. 4.

Canada enters the report with a surprisingly constructive recent trend. Employment has risen for three consecutive months, with roughly 181,000 jobs added since April, while unemployment fell to 6.4% in July, the lowest in two years. If that continues, the market’s earlier BoC-hike pricing gains another argument. If the labor market rolls over, the watchful-waiting camp gets stronger evidence that the Bank should stay patient.

Then there’s US NFP. Strong US jobs could reinforce Warsh-driven Fed repricing and support the Dollar even if Canadian data are solid. Weak NFP could undercut the USD side of the pair. Wednesday tests BoC expectations. Friday tests both sides of USD/CAD.

Oil Could Reinforce CAD, or Complicate the Whole Trade Brent around $92 adds another variable. Oil is pressing toward the upper side of a multi-week triangle, with descending resistance around $94.83 and rising support near $84.56. Renewed US-Iran confrontation means either boundary could become vulnerable to a headline-driven break.

A sustained rise in crude would normally favor CAD through Canada’s terms of trade. In the current cycle, though, it could also feed inflation concerns and strengthen the case for earlier BoC tightening, giving the Canadian Dollar a second channel of support. But geopolitical oil shocks also feed US inflation and Treasury yields, so oil isn’t a one-directional USD/CAD signal — it’s another reason to avoid treating the current OIS-survey gap as settled before this week’s events play out.

ActionForex’s Technical View on USD/CAD: Bounced, But Not Reversed The charts tell a similarly unresolved story. USD/CAD has recovered from 1.3730, but the bounce still looks corrective against the decline from 1.4247. Last week’s broad Dollar strength wasn’t enough to push the pair through 1.3927, the 38.2% retracement of that fall, and price remains below descending near-term resistance.

Momentum is neutral. The 4H RSI is around 50 and the MACD is hovering close to zero — neither supports the claim that a new bullish trend has begun.

As long as 1.3927 caps upside, another move lower remains favored. A break of 1.3823 would be the first sign the rebound is ending and put 1.3730 back in focus. A break of 1.3730 would resume bearish pressure and reopen the larger downside.

The alternative is clear too. A firm move above 1.3927 would invalidate the immediate bearish setup and target 1.4002, where former support has turned into resistance.

1.4002 Separates Correction From a Bigger Reassessment The daily chart puts that near-term battle into broader context. The recovery from 1.3480 is still treated as corrective within the medium-term downtrend. It may already have completed as a three-wave rise to 1.4247, or that move may represent the first leg of a larger correction. Either interpretation still allows another test of 1.3480 while 1.4002 holds.

This creates a clean fundamental-technical bridge for Wednesday. If the BoC sounds comfortable waiting well into 2027, USD/CAD could finally push through 1.3927 and test whether 1.4002 can hold. If Macklem sounds closer to the market’s earlier tightening timeline, the rebound from 1.3730 could fail before those levels and the broader bearish structure would stay intact.

Either way, Wednesday’s answer is unlikely to come from the 2.25% printed at the top of the decision. It will come from how the Bank talks about what happens next — and whether that sounds more like economist consensus, market pricing, or the increasingly hawkish minority already calling for an October hike.

Key Takeaways Wednesday’s BoC hold at 2.25% is fully priced by both economists and markets, but the two diverge sharply on timing: Q4 2027 (Reuters consensus) versus roughly 1.76 hikes priced by March 2027 (OIS). National Bank and Scotiabank represent the hawkish tail, expecting hikes to 2.50% in October and 2.75% in December, more than a year ahead of consensus. With no new Monetary Policy Report this week, statement language and Macklem’s press conference tone carry more weight than usual for gauging which camp is right. Friday’s dual Canada-US employment reports may matter more than Wednesday’s decision, testing both the BoC repricing story and the Warsh-driven Fed repricing simultaneously. USD/CAD stays capped below 1.3927 resistance for now; a hawkish BoC tone could push through toward 1.4002, while a dovish tone risks a break of 1.3823 and a retest of 1.3730.

ActionForex

ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for two decades. We started providing only a daily and a mid-day report, now known as Action Insights. Gradually, we added a lot more in-house contents to the site. Technical Outlook section was expanded to cover more pairs. In addition to that, Top Movers, Heat Map, Pivot Point Charts and Pivot Meters, Action Bias and Volatility Charts, are tools used by traders from all over the world.

The Canadian Dollar strengthened as oil prices extended their advance and renewed pressure on the US Dollar pushed USD/CAD towards fresh August lows. The Canadian Dollar gained further ground on Thursday, with firmer crude prices and a softer US currency reinforcing a move that has gathered pace over the past week.

The US Dollar to Canadian Dollar (USD/CAD) exchange rate traded around 1.3776, down 0.25% on the day and 1.09% lower over five sessions.

Latest — Exchange Rates:

Pound to Canadian Dollar (GBP/CAD): 1.880004 (+0.10%)

Euro to Canadian Dollar (EUR/CAD): 1.610518 (-0.11%)

Dollar to Canadian Dollar (USD/CAD): 1.37752 (-0.26%)

WTI crude was also up more than 1% near $85.58 a barrel as the Strait of Hormuz standoff kept supply risks elevated.

Oil Prices and Fed Expectations Support the Loonie The Canadian currency has benefited from the combination of higher energy prices and fading expectations that the Federal Reserve will deliver another near-term rate increase.

Reuters market commentary highlighted both themes as supportive for the Loonie, while Wednesday's US Treasury decision to increase long-dated bond buybacks also pulled US yields lower and weighed on the Dollar.

The move leaves USD/CAD testing an important area around 1.3770 after falling more than 2% over the past month.

ING strategists Chris Turner and Francesco Pesole remain cautiously constructive on the Canadian Dollar, saying that “broader USD weakness can still drive USD/CAD down to 1.38 by year-end.”

MUFG's latest projections similarly envisage USD/CAD easing from 1.41 in the third quarter towards 1.39 by year-end and 1.36 by the second quarter of 2027.

The immediate Canadian Dollar outlook will remain closely tied to oil and US rate expectations. A sustained break below 1.3770 would strengthen the case for a deeper USD/CAD retreat, while renewed Treasury-yield pressure would threaten the latest gains.

Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.

USD/CAD is attempting to extend its recovery on Tuesday as traders look beyond Canada’s hotter July inflation report and turn their attention to an increasingly important US-Canada trade deadline. The pair was trading around 1.3897 at the time of writing, having recovered from a recent low near 1.3850. The rebound puts the psychological 1.3900 level back in focus after USD/CAD spent much of August under selling pressure.

The Canadian dollar initially benefited from Monday’s inflation figures, but that support has faded as investors assess whether the increase in headline CPI is enough to materially alter the Bank of Canada interest rate outlook. More importantly, currency markets are now preparing for Wednesday’s deadline for potentially steep US tariffs on Canadian goods, making trade policy a significant near-term risk for the loonie.

Canada CPI Hits 3.0%, but Core Inflation Tells a Different Story Canada’s annual inflation rate accelerated to 3.0% in July from 2.8% in June, reaching the upper end of the Bank of Canada’s 1% to 3% inflation-control range. The increase was largely driven by gasoline prices, which jumped 25.7% year over year, while higher travel costs also contributed to the rise. On a monthly basis, CPI increased 0.5%. However, the underlying inflation picture was considerably less concerning.

The Bank of Canada’s closely watched CPI-trim measure stood at 1.9%, while CPI-median was 2.0%. Inflation excluding food and energy was also 1.9%, suggesting the acceleration in headline prices has not yet developed into broad-based inflationary pressure.

That distinction matters for the Canadian dollar outlook. A headline CPI reading of 3.0% would normally strengthen expectations for tighter monetary policy and potentially support the loonie. However, contained core inflation gives the Bank of Canada more room to wait before making its next move, particularly while the economy faces substantial uncertainty from US trade policy.

As a result, Monday’s inflation report has not been enough to prevent USD/CAD from recovering.

US-Canada Tariff Deadline Becomes the Next USD/CAD Catalyst Attention has now shifted firmly toward trade negotiations between Washington and Ottawa. The United States has threatened to impose 50% tariffs on roughly $20 billion of Canadian imports beginning Wednesday, representing a potentially significant escalation in the trade dispute between the two countries.

Canadian Prime Minister Mark Carney spoke with US President Donald Trump on Tuesday as officials continued last-minute negotiations aimed at preventing the tariffs from taking effect. However, significant disagreements remain, particularly around automobiles and existing US tariffs on Canadian goods. For USD/CAD, the outcome could overshadow Monday’s inflation data.

A last-minute agreement, postponement or softer tariff framework could remove an important source of uncertainty for the Canadian economy and potentially strengthen the loonie. Conversely, implementation of the proposed 50% tariffs could raise concerns about Canadian exports, business investment and economic growth. That makes Wednesday’s deadline a potential volatility event for the USD/CAD exchange rate.

USD/CAD Technical Analysis: 1.3900 Back in Focus The four-hour chart shows USD/CAD attempting to recover after its prolonged decline from the July highs. The pair recently found support around 1.3850, before rebounding to approximately 1.3897. Price has also moved back above the 20-period Bollinger Band moving average near 1.3885, providing an early indication that short-term momentum is improving.

The MACD reinforces that recovery signal. Although both the MACD and signal lines remain below zero, the MACD line has crossed above its signal line and the histogram has turned positive. This suggests bearish momentum is weakening after the recent selloff.

Immediate resistance sits around 1.3900, followed by the upper Bollinger Band near 1.3932. A sustained move above 1.3930 could strengthen the rebound and expose the previous resistance zone around 1.3950.

On the downside, 1.3850 remains the key support level, closely followed by the lower Bollinger Band around 1.3838. A break below this region would restore the bearish structure and increase the risk of another leg lower.

USD/CAD Outlook: Can the Canadian Dollar Resume Its Rally? Despite Tuesday’s rebound, the broader USD/CAD price trend remains bearish, with the pair having fallen substantially from levels above 1.4100 in late July. For buyers, reclaiming 1.3930 to 1.3950 would provide stronger evidence that the current move is developing into something more than a short-term correction.

For sellers, failure to establish a sustained break above 1.3900 would leave the recent 1.3850 support vulnerable to another test. The tariff deadline may ultimately decide which side gains control. With Canada’s CPI report now behind the market, US-Canada trade negotiations have become the most immediate catalyst for the USD/CAD price forecast, and Wednesday could determine whether the pair extends its recovery or resumes the broader decline.

Why is USD/CAD rising today?

USD/CAD is rebounding toward 1.3900 as the Canadian dollar loses some of the support it received from Canada’s July inflation report. Traders are also positioning ahead of the US-Canada tariff deadline, which could have significant implications for the Canadian economic outlook.

How did Canada’s CPI affect the Canadian dollar?

Canada’s July headline CPI accelerated to 3.0% year over year from 2.8% in June. However, underlying inflation measures remained considerably softer, limiting expectations that the Bank of Canada will need to respond aggressively to the headline increase.

What could move USD/CAD next?

The US-Canada tariff deadline is the main near-term catalyst. Any agreement, postponement or escalation in tariffs could trigger volatility in the Canadian dollar and USD/CAD. Traders will also continue monitoring oil prices, US economic data and Bank of Canada interest rate expectations.

USD/CAD extends its decline farther below 1.4000 on Friday and heads for a third consecutive weekly loss. At the time of writing, the pair trades around 1.3877, at levels last seen in early July.

The recent strength in the Canadian Dollar (CAD) is driven by broad US Dollar (USD) weakness and relatively stronger Canadian economic data, while elevated Oil prices provide underlying support to the commodity-linked Loonie.

Monetary policy expectations remain in focus. In the US, moderating inflation, weaker consumer spending and signs of labour market softness have lowered the chances of a Federal Reserve (Fed) interest rate hike next month. Across the border, next week’s Consumer Price Index (CPI) report will provide a fresh update on inflation and its possible impact on the Bank of Canada’s (BoC) policy path.

BoC seen prioritising soft core inflation as output gap closes only graduallyAccording to TD Securities, the Bank of Canada is likely to place greater emphasis on the “softer trajectory for core inflation” at its 2 September decision, noting that the limited “passthrough from higher oil prices gives it more scope to continue looking through the energy shock.” The bank adds that the “recent deceleration across core inflation measures also helps to validate the Bank's assessment around excess supply and capacity to absorb stronger growth amid the rebound in Q2 GDP tracking.”

In TD’s view, this backdrop “should allow the Bank of Canada to stick to its recent messaging next month, with a focus on softer underlying inflation and the gradual timeline to close the output gap.”

Technical analysis

From a technical perspective, USD/CAD maintains a steady downtrend, forming a series of lower highs and lower lows since reversing from above 1.4200 in late June. The pair subsequently slipped below the 50-day Simple Moving Average (SMA), while the latest leg lower has pushed it beneath the 100-day SMA.

The Relative Strength Index (14) around 29 signals oversold conditions and warns that downside momentum may be stretched even as the Moving Average Convergence Divergence (MACD) remains in negative territory.

On the downside, immediate support is aligned with the 200-day SMA close to 1.3850, ahead of a more substantial horizontal floor at 1.3700, with a deeper bearish extension exposing the structural level at 1.3542.

On the topside, a recovery attempt would first face resistance at the 100-day SMA at 1.3920, with any stronger rebound likely capped by the higher 50-day SMA at 1.4077 unless sellers lose control of the medium-term trend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHFUSD-0.31%-0.35%-0.08%-0.39%-0.29%-0.59%-0.14%EUR0.31%-0.04%0.22%-0.10%0.02%-0.30%0.17%GBP0.35%0.04%0.28%-0.08%0.06%-0.24%0.22%JPY0.08%-0.22%-0.28%-0.30%-0.21%-0.54%-0.04%CAD0.39%0.10%0.08%0.30%0.10%-0.20%0.26%AUD0.29%-0.02%-0.06%0.21%-0.10%-0.30%0.16%NZD0.59%0.30%0.24%0.54%0.20%0.30%0.48%CHF0.14%-0.17%-0.22%0.04%-0.26%-0.16%-0.48%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

USD/CAD trades on the back foot on Monday even as the US Dollar (USD) regains some ground after weakening last week following softer-than-expected US Nonfarm Payrolls (NFP) data. Attention now turns to Wednesday’s US Consumer Price Index (CPI) report. At the time of writing, the pair trades around 1.3932, near its lowest level in two months.

The Canadian Dollar (CAD) draws support from stronger-than-expected domestic labour data and rising Oil prices. West Texas Intermediate (WTI) trades around $80.37 per barrel, up 5.20% on the day.

USD/CAD dip below 1.40 puts focus on US CPI and Fed pricingAccording to TD Securities, the latest payrolls data “broke USD/CAD below 1.40,” as the sharp reaction to the contrasting US and Canadian labour market outcomes underscored that “the market remains focused on both central-bank divergence and Canada's domestic outlook.” On the Canadian side, the bank notes that “recent developments in the Canadian economy have evolved broadly in line with our forecasts,” and that while the data surprise is “briefly pushing USD/CAD below the 1.40 support level,” they “think the bearish USD momentum may not sustain unless US CPI also surprises lower to allow market to price out near-term Fed rate hiking odds.”

From a technical perspective, USD/CAD has formed a series of lower highs and lower lows since briefly rising above 1.4200 in late June. The pair holds below the 1.4000 psychological mark and the 50-day Simple Moving Average (SMA) at 1.4075, keeping the near-term bias tilted to the downside.

Momentum indicators also favour sellers. The Relative Strength Index (RSI) sits near 33, approaching oversold territory, while the Moving Average Convergence Divergence (MACD) indicator stays in negative territory.

On the downside, the 100-day SMA near 1.3916 offers initial support, followed by the 200-day SMA around 1.3853. A decisive break below the latter could open the door to a deeper decline.

On the topside, the 1.4000 psychological mark acts as immediate resistance, followed by the 50-day SMA at 1.4075. A recovery above this moving average would ease the bearish pressure.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Canadian Dollar Price Today The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHFUSD0.10%-0.24%0.72%-0.06%0.05%0.10%0.20%EUR-0.10%-0.33%0.61%-0.17%-0.04%-0.00%0.10%GBP0.24%0.33%0.97%0.17%0.31%0.33%0.44%JPY-0.72%-0.61%-0.97%-0.80%-0.69%-0.68%-0.52%CAD0.06%0.17%-0.17%0.80%0.06%0.18%0.25%AUD-0.05%0.04%-0.31%0.69%-0.06%0.02%0.15%NZD-0.10%0.00%-0.33%0.68%-0.18%-0.02%0.11%CHF-0.20%-0.10%-0.44%0.52%-0.25%-0.15%-0.11% The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

Summary:

USD/CAD climbed toward weekly highs as falling oil prices weakened the Canadian dollar despite strong domestic trade data. Canada's trade surplus reached a four-year high, but the positive economic data was overshadowed by the sharp decline in crude oil prices. Markets are reassessing Federal Reserve expectations, limiting gains in the US dollar after weaker-than-expected US economic data. USD/CAD rises as oil prices pressure the Canadian dollar The USD/CAD exchange rate extended its gains on Wednesday, climbing toward the 1.4080 level as another sharp decline in oil prices continued to pressure the Canadian dollar.

The move came despite encouraging economic data from Canada, where the country’s merchandise trade surplus expanded to its highest level in four years during June. Under normal market conditions, stronger trade figures would support the loonie. However, investors remained focused on the collapse in crude oil prices, which has become the dominant driver of the Canadian currency this week.

Canada is one of the world’s largest crude exporters, meaning movements in oil prices often have a direct impact on the value of the Canadian dollar. With Brent crude slipping below $80 per barrel as hopes for a diplomatic breakthrough between the United States and Iran improved, traders reduced exposure to the loonie in anticipation of weaker export revenues.

Lower oil prices offset stronger Canadian economic data The Canadian dollar struggled to capitalize on stronger-than-expected domestic economic data as falling crude oil prices remained the dominant driver of market sentiment. Canada reported a merchandise trade surplus that climbed to a four-year high in June, reflecting resilient exports and healthy external demand. Under normal circumstances, such data would provide support for the loonie by reinforcing confidence in the country’s economic outlook.

However, investors largely overlooked the upbeat trade figures as oil prices extended their recent decline. Brent crude slipped below $80 per barrel, marking its lowest level in several weeks, after growing optimism that diplomatic negotiations between the United States and Iran could ease tensions in the Middle East and reduce the risk of supply disruptions. Expectations that global oil supplies could stabilize prompted traders to unwind part of this year’s geopolitical risk premium.

Because crude oil is Canada’s largest export, movements in energy prices have a significant impact on the country’s trade balance, corporate earnings and economic growth prospects. The latest decline in oil prices therefore outweighed the positive impact of Canada’s stronger trade data, leaving the loonie under pressure as investors continued to favor the US dollar.

Softer US data caps US dollar gains While USD/CAD continued to move higher, gains in the US dollar remained limited as investors reassessed the outlook for Federal Reserve policy following a fresh batch of weaker-than-expected US economic data. The greenback initially found support from broad risk sentiment but struggled to build sustained momentum as markets questioned whether the Fed would have enough justification to continue tightening monetary policy.

Recent economic releases painted a mixed picture of the US economy. JOLTS job openings fell by more than economists had anticipated, suggesting labor demand is beginning to cool after months of resilience. Meanwhile, factory orders unexpectedly declined, pointing to softer business investment and moderating manufacturing activity. Together, the data reinforced expectations that economic momentum is slowing, reducing pressure on the Fed to raise interest rates aggressively in the near term.

As a result, traders scaled back expectations for another interest rate hike, with market-implied odds of a September increase easing from the previous session. Lower rate expectations tend to weigh on the US dollar by narrowing its interest-rate advantage over other major currencies.

Despite this, USD/CAD remained supported because weakness in the Canadian dollar proved more significant than softness in the greenback. Falling crude oil prices continued to undermine the loonie, allowing the pair to edge higher even as US dollar gains were capped by expectations of a less hawkish Federal Reserve.

USD/CAD outlook The USD/CAD outlook remains cautiously bullish while the pair trades above the psychological 1.4000 support level. Buyers are now testing resistance around 1.4090, a key technical barrier that has capped recent advances. A decisive breakout above this level could expose 1.4125, with the yearly high near 1.4250 becoming the next major upside target.

However, if oil prices recover or expectations for further Federal Reserve tightening continue to fade, the Canadian dollar could regain some ground, potentially pulling USD/CAD back toward 1.4000.

Why is USD/CAD rising today?

USD/CAD is rising mainly because falling oil prices are weakening the Canadian dollar, while the US dollar remains relatively stable despite softer US economic data.

What is the next key level for USD/CAD?

The immediate resistance level is around 1.4090. A sustained move above this level could open the door for a test of 1.4125, followed by the 2026 highs near 1.4250.

Why do oil prices affect the Canadian dollar?

Canada is a major oil exporter. Lower crude prices reduce export revenues and typically weaken the Canadian dollar, while higher oil prices generally support the currency.

The USD/CAD pair seesaws between tepid gains/minor losses through the early European session on Friday, consolidating its recent losses to the lowest level since June 17, touched the previous day. However, a combination of supporting factors assists spot prices in holding above the 1.4000 psychological mark.

The US Dollar (USD) regains some positive traction as inflation risks stemming from volatile energy prices keep inflation risks and the US Federal Reserve (Fed) rate hike bets in play. Furthermore, retreating crude oil prices undermine the commodity-linked Loonie and act as a tailwind for the USD/CAD pair. The lack of any meaningful buyers, however, warrants some caution before confirming that a three-day-old downtrend has run its course.

From a technical perspective, this week's breakdown below the 200-period Simple Moving Average (SMA) on the 4-hour chart was seen as a key trigger for bearish traders. Adding to this, the Moving Average Convergence Divergence (MACD) sits below zero with the line in negative territory, while the Relative Strength Index (RSI) hovers near 37. Momentum indicators hint that downside momentum remains dominant despite the proximity of initial support.

However, it will be prudent to wait for some follow-through selling and acceptance below the 1.4000 mark before positioning for deeper losses. The USD/CAD pair might then weaken to the 38.2% Fibo. retracement around 1.3979, which is followed by deeper retracement levels at 1.3897 and 1.3814, where the 50.0% and 61.8% Fibo levels could slow further losses.

On the topside, any recovery would first need to overcome resistance at the 23.6% retracement near 1.4082, with the 200-period SMA at 1.4130 capping the broader upside. Failure to clear the said hurdle will reinforce the prevailing bearish structure while the USD/CAD pair remains below it.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

USD/CAD 4-hour chart

Canadian Dollar Price This week The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this week. Canadian Dollar was the strongest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHFUSD-1.00%-0.81%-1.96%-0.48%-0.39%-1.13%-1.03%EUR1.00%0.17%-0.98%0.53%0.62%-0.13%-0.04%GBP0.81%-0.17%-1.29%0.35%0.44%-0.30%-0.21%JPY1.96%0.98%1.29%1.54%1.64%0.88%0.89%CAD0.48%-0.53%-0.35%-1.54%0.06%-0.65%-0.56%AUD0.39%-0.62%-0.44%-1.64%-0.06%-0.74%-0.65%NZD1.13%0.13%0.30%-0.88%0.65%0.74%0.09%CHF1.03%0.04%0.21%-0.89%0.56%0.65%-0.09% The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

Summary:

Rising crude oil prices and a weakening greenback pushed USD/CAD back below 1.4100, threatening a return to its July downward channel Central bank divergence remains a risk, as a cautious Bank of Canada (BoC) and hawkish Federal Reserve could limit further loonie gains The Bank of Canada’s steady policy rate keeps interest rate differentials tilted in favor of greenback dip-buyers on deeper pullbacks The US dollar briefly halted the Canadian dollar’s recent climb earlier this week. But it started falling again yesterday and still looks weak today. Now trading below 1.4100, around 1.4080, investors wonder if USD/CAD will return to the steady decline it had between late June and mid-July.

What Broke the Downtrend The brief pause in the downtrend had a clear cause. On Monday, the US administration announced new 50% tariffs on various Canadian goods, including wine, dairy, and cement. This action was stated as a response to what the US described as discriminatory practices against American products in Canada.

Canadian Prime Minister Mark Carney called this the latest in a series of unilateral US trade actions. He said Canada had “merely matched” prior US measures. Headlines like that usually hit the loonie first and hardest, which explains why the dollar strengthened Monday and Tuesday.

What Is Driving the Loonie’s Rebound? A significant increase in global crude oil prices is the primary driver behind the Canadian dollar’s resurgence. As a major exporter of commodities, Canada benefits directly from rising crude prices. Oil prices have reached new multi-week highs, which has helped to offset recent domestic challenges and provide strong fundamental support for the Canadian dollar.

Potential Risks Beneath the Surface Despite the current trend, a return to a consistent downtrend is not guaranteed. The tariffs announced on Monday will take effect in 30 days. If trade tensions escalate further before then, sentiment towards Canadian assets could shift negatively, irrespective of oil prices or interest rate movements.

While the current trend favors a stronger Canadian dollar, underlying risks require careful assessment. Uncertainties surrounding the USMCA trade agreement renewal and potential tariff discussions remain significant factors that could strengthen the US dollar if tensions increase.

Market expectations indicate that the Bank of Canada (BoC) might maintain a supportive monetary policy stance, influenced by recent lower domestic consumer price index (CPI) figures. In contrast, persistent US inflation data suggests the Federal Reserve is likely to continue its restrictive monetary policy for a longer period.

Investors should consider USD/CAD with a balanced view. Those expecting further gains in the Canadian dollar might explore strategies that leverage CAD strength, such as hedging US dollar exposure or investing in Canadian assets sensitive to commodity prices.

Effective risk management remains crucial. Diversification and close attention to central bank statements, oil market developments, and trade news will be essential for navigating market fluctuations. Adopting a flexible approach that adapts to evolving data, rather than making large directional bets, is likely to better serve long-term investment goals.

Is USD/CAD returning to its prior downward channel?

The recent weakness in the US dollar suggests a potential return to the late June to mid-July downtrend if current momentum continues.

What risks could impact USD/CAD trajectory?

Trade tensions related to the USMCA, geopolitical shocks in the energy sector, and differing monetary policies between the Federal Reserve and the Bank of Canada present notable risks of upward movement for the pair.

How do central bank interest rate expectations affect the USD/CAD outlook?

A potentially cautious Bank of Canada alongside a hawkish Federal Reserve could limit severe downside losses for USD/CAD.

The latest US tariffs on Canadian goods may be relatively modest in size, but the market reaction suggests investors are focusing on something bigger than the immediate trade impact. USD/CAD advanced after US President Donald Trump signed three proclamations imposing 50% tariffs on about $20 billion of Canadian exports, including alcohol, dairy products, motor vehicles, cement, hockey equipment and electrical machinery. The measures will take effect in roughly 30 days and, notably, apply regardless of compliance with the US-Mexico-Canada Agreement (USMCA, known as CUSMA in Canada), while exempting energy, potash, critical minerals and products already subject to Section 232 duties.

The significance lies less in the sectors affected than in what the latest move says about US trade policy. Since early 2025, Washington has repeatedly expanded tariffs on Canadian goods using different legal authorities rather than relying on the framework established by USMCA. Each new measure reinforces the perception that the agreement is providing less practical protection against unilateral trade actions. As a result, markets are increasingly treating US-Canada trade friction as a structural issue rather than a series of isolated disputes, adding another headwind to Canada’s economic outlook just as uncertainty surrounding the formal USMCA review continues to build.

Canada’s response has so far stopped short of matching Washington’s escalation. Prime Minister Mark Carney reiterated his preference for negotiations and emphasized strengthening Canada’s domestic economy, while Ontario Premier Doug Ford urged Ottawa to retaliate “tariff for tariff, dollar for dollar.” Whether the federal government adopts a more confrontational stance will likely determine how far trade tensions escalate. For now, the new tariffs represent another obstacle for the Canadian Dollar, particularly if investors begin pricing a more prolonged drag on growth.

Technically, USD/CAD is also sending a constructive signal for Dollar bulls. The rebound from 1.4002 followed successful tests of both 55 D EMA (now at 1.4002) and 1.3965 cluster support (38.2% retracement of 1.3480 to 1.4247 at 1.3954), suggesting the decline from 1.4247 was corrective rather than the start of a broader reversal. Firm break above 1.4115 minor resistance would strengthen the case that the broader uptrend from the 2026 low at 1.3480 is resuming, bringing another challenge of the 1.4247 high into view.

ActionForex

ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for two decades. We started providing only a daily and a mid-day report, now known as Action Insights. Gradually, we added a lot more in-house contents to the site. Technical Outlook section was expanded to cover more pairs. In addition to that, Top Movers, Heat Map, Pivot Point Charts and Pivot Meters, Action Bias and Volatility Charts, are tools used by traders from all over the world.

USD/CAD Key Points Canadian inflation cooled more sharply than expected in June, easing concerns that the recent energy-driven increase was spreading across the broader economy. Headline CPI slowed to 2.8% y/y from 3.2% in May; Excluding gasoline, inflation held steady at 2.2% y/y. USD/CAD remains near a 1-month low, but a possible bullish engulfing candlestick pattern that would strengthen the argument for a near-term bottom.

A week after a similarly below-expectation report from the US, Canadian inflation cooled more sharply than expected in June, easing concerns that the recent energy-driven increase was spreading across the broader economy. Headline CPI slowed to 2.8% y/y from 3.2% in May, while prices fell -0.4% m/m. On a seasonally adjusted basis, CPI declined -0.1%.

The slowdown was largely driven by gasoline, which fell -10.2% from May as global oil prices retreated. Gasoline remained 20.5% more expensive than a year earlier, but that was well below May’s 33.2% increase. Excluding gasoline, inflation held steady at 2.2% y/y.

The underlying details were also encouraging. The Bank of Canada’s preferred CPI-trim and CPI-median measures eased to 1.8% and 1.9%, respectively, leaving their average below the 2% target. Grocery inflation remained relatively firm at 3.9%, while World Cup-related demand pushed accommodation and air travel prices sharply higher. However, those increases were concentrated rather than widespread and are likely to dissipate soon with the tournament wrapping up this weekend.

For the Bank of Canada, the report supports the view that higher energy costs have not generated significant second-round inflation yet. With economic growth beginning to recover, the most likely outcome remains an extended hold at 2.25%, assuming oil prices stabilize and core inflation stays contained, though energy volatility from the ongoing conflict in Iran could still have a spillover impact on Canada’s oil-dependent economy in the coming months.

Canadian Dollar Technical Analysis: USD/CAD Daily Chart

Source: Tradingview, StoneX

From a technical perspective, USD/CAD is bouncing from support at its 50-day EMA near 1.4025, helped along by this morning’s softer-than-anticipated Canadian data. The North American pair remains near a 1-month low, but the combination of a BOC in stasis and the potential for safe-haven demand for the US dollar amid the re-escalating Iranian conflict could boost the pair as we move through the week. Current price action is showing a possible bullish engulfing candlestick pattern that would strengthen the argument for a near-term bottom.

Looking ahead, previous-support-turned-resistance at 1.4130 is the next level of resistance to watch before the 1+ year highs in the low-1.4200s, whereas a break below the 50-day EMA near 1.4020 could target the 38.2% Fibonacci retracement of the May-July rally below 1.4000.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

By the time the Bank of Canada announces its policy decision today, the Canadian Dollar has already built a powerful foundation for further gains. USD/CAD has fallen to its lowest level in nearly a month, supported not by a single catalyst but by three reinforcing forces: a broad retreat in the US Dollar after softer inflation data, higher oil prices that strengthen Canada’s export outlook, and growing expectations that the Bank of Canada may sound more hawkish than markets anticipated only a week ago.

The first two drivers have already reshaped the currency outlook. June’s weaker-than-expected US CPI prompted investors to scale back Federal Reserve tightening expectations, weighing on the Dollar across major currency pairs. At the same time, Brent crude has surged above $86 as renewed US-Iran hostilities threaten energy supplies through the Strait of Hormuz. For Canada, rising oil prices are more than just a global inflation story—they improve the country’s terms of trade and typically provide direct support for the Canadian Dollar, helping explain why the Loonie has outperformed most of its peers following the inflation data.

The Bank of Canada now has an opportunity either to reinforce or challenge that momentum. Economists overwhelmingly expect a sixth consecutive hold at 2.25%, making the decision itself unlikely to surprise. The more important question is whether Governor Tiff Macklem adjusts his message in response to oil’s renewed surge. His previous characterization of policy as balancing weaker growth against energy-driven inflation was formed before Brent’s latest rally, meaning the Monetary Policy Report may already understate current inflation risks. Markets will therefore pay closer attention to Macklem’s live assessment than to the published projections.

That leaves the accompanying statement and Macklem’s press conference as the key market events. Investors will focus on whether the Governor continues to describe policy as a balanced dilemma or acknowledges that the renewed energy shock has tilted inflation risks higher. Any discussion of the ongoing CUSMA trade review will also be closely watched, as it remains an important downside risk to Canada’s growth outlook. Even without signaling an imminent rate increase, a modestly more hawkish tone could encourage markets to further increase expectations of tightening in early 2027, where pricing is already becoming increasingly balanced.

Technically, USD/CAD is approaching an important inflection point. While the decline from 1.4247 has accelerated, it is still viewed as a correction within the broader uptrend from 1.3480. Strong support is expected between former resistance at 1.3965 and 38.2% retracement of 1.3480 to 1.4247 at 1.3954. Break of 1.4159 minor resistance will indicae that the correction has completed.

However, a decisive break below 1.3954/65 would suggest the advance from 1.3480 has completed as a three-wave corrective rebound after failing near 61.8% retracement of 1.4791 to 1.3480 at 1.4290. Such a development would shift the near-term technical outlook decisively in favour of further Canadian Dollar strength.

ActionForex

ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for two decades. We started providing only a daily and a mid-day report, now known as Action Insights. Gradually, we added a lot more in-house contents to the site. Technical Outlook section was expanded to cover more pairs. In addition to that, Top Movers, Heat Map, Pivot Point Charts and Pivot Meters, Action Bias and Volatility Charts, are tools used by traders from all over the world.