CFD Trading Rate US Dollar vs Canadian Dollar (USDCAD)

• USD/CAD appreciates as the Fed reaffirms expectations for three interest rate cuts in 2024.
• Higher WTI price could have contributed to underpinning the Canadian Dollar.
• FOMC has projected stronger growth throughout 2024 and 2025 than initially anticipated.

USD/CAD moves downward to near 1.3470 during the Asian session on Thursday, extending its losses for the second successive day. The Canadian Dollar (CAD) likely found support from rising Crude oil prices.

West Texas Intermediate (WTI) crude oil prices edge higher, reaching close to $81.70 by the time of reporting. This increase may have bolstered the CAD, as the United States (US) Energy Information Administration (EIA) announced a second consecutive week of declines in Crude inventories, indicating strong demand in the world's largest oil consumer.

Meanwhile, the Bank of Canada's (BoC) Governing Council is considering potential rate cuts in 2024 should economic conditions align with forecasts. However, internal disagreements persist regarding the timing of such cuts and the risks associated with inflation. Governor Tiff Macklem remains cautious about immediate rate adjustments, citing concerns over underlying inflationary pressures.

At the time of writing, the US Dollar Index (DXY) has declined to approximately 103.20, primarily driven by weaker US Treasury yields. Yields for 2-year and 10-year bond coupons have fallen to 4.58% and 4.25%, respectively. This decrease can be attributed to the US Federal Reserve's (Fed) reaffirmation of expectations for three interest rate cuts this year.

The Federal Reserve maintained its interest rates at 5.5% during Wednesday's policy meeting. Investor sentiment continues to indicate expectations of additional easing measures in 2024, despite the Federal Open Market Committee (FOMC) projecting stronger growth throughout 2024 and 2025 than initially anticipated.

Notably, the FOMC's Dot Plot of interest rate expectations has shown an increase in the long tail end of the curve. Rates are now forecasted to reach approximately 3.1% by the end of 2026, compared to the previous projection of 2.9%.

The firm USD/CAD undertone persists. Economists at Scotiabank analyze the pair’s outlook.

Seasonal trends turn more constructive for the Loonie in Q2 typically

• USD/CAD rallies up to higher 1.3500s following lower-than-expected Canadian CPI. 
• The data suggests the Bank of Canada will not need to keep interest rates as elevated – a negative for CAD. 
• Traders gear up for the Fed meeting later on Wednesday. 

The USD/CAD pair continues its rally, reaching the upper 1.3500s on Wednesday, after the release of softer-than-expected inflation data for February gives the Bank of Canada scope to ease policy in the future. 

Easier monetary policy usually means lower interest rates which are negative for a currency as they reduce foreign capital inflows. 

The headline Consumer Price Index (CPI) in Canada rose 2.8% YoY in February, which was below economists’ expectations of 3.1% and the previous month’s 2.9%, according to Statistics Canada. 

Monthly headline CPI rose 0.3% which was below economists’ estimates of 0.6% but above the 0.0% of January.

Canadian Core CPI rose 2.1% in February compared to 2.4% in January. On a monthly basis, Core CPI increased 0.1%, the same as in January. 

The data indicates that the Bank of Canada could tweak its language at the the next meeting in April to sound more dovish, with negative implications for the Canadian Dollar (CAD), but positive for the USD/CAD pair. 

“The 3 mma measures of inflation have softened considerably over the last two months. While an encouraging development that could lead to incrementally more dovish language from the BoC at its upcoming 10-April meeting, we still see hopes for an imminent rate cut as premature.” Says David Doyle, head of economics at Macquarie. 

Fed meeting ahead

USD/CAD is expected to undergo volatility later in the day when the Federal Reserve wraps up its March policy meeting and announces its decisions at 18:00 GMT. 

The Federal Reserve (Fed) is not expected to alter interest rates but there is a chance it could revise its quarterly forecasts and accompanying statement. This could change the outlook for interest rates and therefore the US Dollar (USD) valuation. 

There is increasing speculation that the Fed will revise its economic forecasts in the Summary of Economic Projections (SEP) and the “dot plot”, a chart which reflects the Board of Governors’ consensus expectations of the future path of interest rates. 

In the December SEP, officials forecast three 25 basis points (0.25%) rate cuts in 2024 but some analysts now think there is a risk that this could be revised down to two 25 bps cuts to reflect inflationary pressures remaining elevated. 

Nordea Bank, for example, said in a recent note that, “the Fed will likely need to revise its growth and inflation projections higher for 2024. This could lead to a median FOMC dot plot that shows only two rate cuts this year compared to the latest projection for three rate cuts, made in December 2023.”

Such a move would be positive for USD and USD/CAD, leading to further upside for the pair.

• USD/CAD holds positive ground near 1.3578 in Wednesday's Asian session. 
• Fed is anticipated to keep rates steady in a range of 5.25% to 5.5% at its policy meeting on Wednesday. 
• The downbeat Canada’s CPI inflation data boosted expectations for a June rate cut from the BoC.

The USD/CAD pair gains momentum above the mid-1.3500s during the early Asian trading hours on Wednesday. The uptick of the pair is bolstered by the firmer US Dollar (USD) and cooler-than-expected Canadian Consumer Price Index (CPI) inflation data. Investors will closely monitor the Federal Reserve interest rate decision on Wednesday, with no change in rate expected. At the press time, the pair is trading at 1.3578, up 0.09% on the day. 

The Fed is likely to keep rates at a two-decade high in a range of 5.25% to 5.5% at its two-day policy meeting on Wednesday and stay focused on sticky inflation. According to the CME FedWatch Tool, markets have priced in three quarter-point rate cuts this year, with 63% odds that they will begin in June

About the data, the US Census Bureau revealed on Tuesday that New Home Sales improved to 10.7% MoM in February from a 12.3% fall in January. Meanwhile, Building Permits rose to 1.9% from the previous reading of a 0.3% decline. 

On the other hand, weaker-than-expected Canada’s CPI inflation data boosted expectations for a June rate cut from the Bank of Canada (BoC), which exerts some selling pressure on the Canadian Dollar (CAD). Following the data, money markets have priced in a 75% chance that the BoC will start cutting rates in June, up from 50% before the release.

On Tuesday, the headline Canadian CPI figure rose 2.8% YoY in February, while the Core CPI figure eased to 2.1% in February from 2.4% in January. On a monthly basis, the CPI figure climbed 0.3% MoM compared to expectations for a 0.6% increase.

Looking ahead, the Fed's monetary policy on Wednesday will take center stage. Fed Chair Jerome Powell will hold a press conference 30 minutes later, which might provide information on the central bank's outlook. On Thursday, the BoC Summary of Deliberations and Canada’s housing data will be released. 

• USD/CAD slips to 1.3565 following Canadian CPI report showing inflation cooling more than expected.
• Disinflationary trend boosts speculation of an upcoming Bank of Canada rate cut, with June odds at 73%.
• US housing data indicates market resilience, adding a positive backdrop to the currency dynamics.

The USD/CAD climbed during the North American session, though it slipped below the 1.3600 figure after data from Canada suggested the disinflationary process continued. At the time of writing, the pair exchanges hands at 1.3565 after hitting a new year-to-date (YTD) high of 1.3613.

The Loonie on the defensive as market participants eye first BoC cut in June

Canada’s economic docket featured the release of inflation data, which decreased below the 3% threshold on annual figures. On a monthly basis, the Consumer Price Index (CPI) saw a 0.3% rise, below the consensus of 0.6%. The Bank of Canada’s (BoC) preferred measure of inflation, the core CPI, slowed in the 12 months to February, from 2.4% to 2.1%.

The data sent the USD/CAD rallying amid speculations that the BoC might cut rates sooner than expected. In the meantime, money market futures data suggest that the odds for the first rate cut by the BoC in the June meeting lie at 73.0%, according to Capital Edge and Refinitiv data.

The US housing sector shows signs of strengthening according to recent economic data. Building Permits in February rose by 1.9% month-over-month, from 1.489 million to 1.496 million. Meanwhile, Housing Starts for the same period saw a significant increase of 10.7%, surpassing the expected 8.2%.

USD/CAD traders brace for Wednesday’s Federal Open Market Committee (FOMC) decision. Futures data shows that the Fed holding rates are unchanged, though uncertainty lies in the update of their Summary of Economic Projections (SEP). Some analysts suggest Fed policymakers could disregard one rate cut, keeping rates higher for longer.

USD/CAD Price Analysis: Technical outlook

After reaching a new YTD high, the USD/CAD retreated below the 1.3600 mark. If the pair closes below the 1.3550 area, that will form an ‘inverted hammer’ opening the door for further losses, but the 100-day moving average (DMA) at 1.3520, a dynamic support level, could cap the losses. Further downside is seen at 1.3500 and at the confluence of the 200 and 50-DMA at 1.3481/87. On the other hand, if buyers come back and reclaim 1.3600, look for a challenge of the November 24 high at 1.3711.

• USD/CAD jumps above 1.3600 as Canadian consumer inflation surprisingly eases in February.
• BoC’s preferred inflation measure decelerated to 2.1% from 2.4% in January on a year-on-year basis.
• The market sentiment remains downbeat amid uncertainty ahead of Fed policy.

The USD/CAD pair soars above the round-level resistance of 1.3600 in the early New York session on Tuesday. The Loonie asset strengthens as the Canadian Consumer Price Index (CPI) for February turns out surprisingly softer than expected.

The annual headline CPI grew at a slower pace of 2.8% than expectations of 3.1% and the former reading of 2.9%. On a monthly basis, the headline CPI rose by 0.3% against the expectation of 0.6%. The Bank of Canada’s (BoC) preferred inflation measure, which strips of eight volatile items grew at a steady pace of 0.1% monthly. The underlying inflation decelerated to 2.1% from 2.4% in January.

The soft inflation data could prompt expectations that the BoC will reduce interest rates sooner than expected. When the BoC considers reducing interest rates, the Canadian dollar faces liquidity outflows.

Meanwhile, the Canadian Dollar has also been weighed down by dismal market sentiment. The appeal for risk-perceived assets weakens amid uncertainty ahead of the Federal Reserve’s (Fed) interest rate decision, which will be announced on Wednesday. The Fed is expected to keep interest rates unchanged in the range of 5.25%-5.50%. The US Dollar Index (DXY) rises to 103.85 as demand for safe-haven assets improves.

Apart from the Fed’s policy decision, investors will focus on the dot plot and economic projections. The dot plot shows policymakers' interest rate projections for different timeframes.

• USD/CAD climbs above 1.3550 amid uncertainty ahead of key events.
• Canadian inflation is forecasted to have accelerated in February.
• Investors will keenly focus on the Fed’s interest rate guidance.

The USD/CAD pair jumps to 1.3550 in Tuesday’s European session after breaking above the two-day consolidation formed in a range of 1.3510-1.3550. The Loonie asset advances as uncertainty ahead of key events has dampened risk appetite of market participants.

S&P500 futures have generated nominal losses in the London session, indicating a risk-aversion mood. The US Dollar Index (DXY) continues its winning spell for the fourth trading session and refreshes its weekly high at 103.87 amid uncertainty ahead of the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

The CME FedWatch tool shows that the central bank is certain to keep interest rates unchanged in the range of 5.25%-5.50%. Investors will focus on cues about rate cuts by the Fed, which are currently expected in the June policy meeting.

Meanwhile, the next move in the Canadian Dollar will be guided by Canada’s Consumer Price Index (CPI) data for February, which will be published at 12:30 GMT. Annual headline inflation is expected to have grown at a higher pace of 3.1% compared to 2.9% recorded for January.

USD/CAD approaches the horizontal resistance of the Ascending Triangle pattern formed on a daily timeframe, plotted from December 7 high at 1.3620. The upward-sloping border of the aforementioned pattern is placed from December 27 low at 1.3177. The chart pattern exhibits a sharp volatility contraction.

The near-term appeal is bullish, as the 20-day Exponential Moving Average (EMA) near 1.3520 continues to support the US Dollar bulls.

The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating indecisiveness among investors.

The Loonie asset would observe a fresh upside if it breaks above December 7 high at 1.3620. This will drive the asset towards May 26 high at 1.3655, followed by the round-level resistance of 1.3700.

On the flip side, a downside move below February 22 low at 1.3441 would expose the asset to February 9 low at 1.3413. A breakdown below the latter would extend downside towards January 15 low at 1.3382.

USD/CAD daily chart

• USD/CAD exhibits sideways movement with a positive bias to extend gains.
• Fed could uphold its elevated interest rates to curb inflationary pressures.
• Canadian Consumer Prices are expected to show an increase in February.

USD/CAD continues its upward trend for the fourth consecutive session, trading near the significant level of 1.3540. The US Dollar (USD) advances, propelled by higher US Treasury yields. Bond markets are facing selling pressure as additional signs of resilience in the United States (US) economy emerge, prompting traders to revise their expectations for fewer interest rate cuts this year.

According to the CME FedWatch Tool, the probability of a rate cut in March stands at 1.0%, and 8.7% for May. The likelihood of rate cuts in June and July is lower, at 55.1% and 73.7%, respectively.

The US Dollar Index (DXY) continues its upward trajectory, with 2-year and 10-year US yields at 4.73% and 4.32%, respectively. Investors are eagerly awaiting the interest rate decision from the US Federal Reserve (Fed), expected to be announced on Wednesday. The Fed is anticipated to uphold its elevated interest rates in response to recent inflationary pressures.

The Canadian Dollar (CAD) might have found support from the surge in Crude oil prices, considering Canada's status as the largest oil exporter to the United States (US). West Texas Intermediate (WTI) hovers around $82.10 per barrel, nearing its highest levels since early November, bolstered by ongoing supply-side worries.

On Monday, the Canadian stock market closed slightly lower as investors awaited Canada's Consumer Price Index (CPI) data scheduled for Tuesday. There are expectations for an uptick in Canadian consumer prices.

USD/CAD trades little changed. Economists at Scotiabank analyze the pair’s outlook.

CAD could pick up a little support if inflation pressures remain elevated

• USD/CAD exhibits strength above 1.3500 ahead of an eventful week.
• The Fed is widely anticipated to hold interest rates unchanged in the range of 5.25%-5.50%.
• The Canadian Dollar faces pressure ahead of consumer inflation data for February.

The USD/CAD pair seems comfortable above the psychological resistance of 1.3500 in the European session on Monday. The Loonie asset clings to gains amid uncertainty ahead of the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

While the Fed is certain to keep interest rates unchanged in the range of 5.25%-5.50%, market participants will keenly focus on the release of the dot plot, which details policymakers’ projections for interest rates over time and the latest economic projections.

The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, drops slightly to 103.40, while the Loonie asset is positive, indicating weakness in the Canadian Dollar.

The Canadian Dollar has come under pressure ahead of the February inflation data, which will be published on Tuesday. The annual headline Consumer Price Index (CPI) is anticipated to have accelerated to 3.1% from 2.9% in January. Hotter-than-anticipated inflation data will delay the Bank of Canada’s (BoC) plans to reduce interest rates.

USD/CAD trades inside Friday’s trading range around 1.3540. Earlier, the Loonie asset rebounded from the upward-sloping border of the Ascending Triangle pattern formed on a daily timeframe, plotted from the December 27 low at 1.3177. The horizontal resistance of the aforementioned pattern is placed from December 7 high at 1.3620.

The 50-day Exponential Moving Average (EMA) near 1.3500 continues to support the US Dollar bulls.

The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 region, which indicates indecisiveness among investors.

The fresh upside would appear if the asset breaks above the December 7 high at 1.3620, which will drive the asset towards the May 26 high at 1.3655, followed by the round-level resistance of 1.3700.

On the flip side, a downside move below February 22 low at 1.3441 would expose the asset to February 9 low at 1.3413. A breakdown below the latter would extend downside towards January 15 low at 1.3382.

USD/CAD daily chart

• USD/CAD appreciates to continue its winning streak on Monday.
• US Dollar could gain ground on expectations of the Fed maintaining higher interest rates to combat inflation.
• The higher WTI price could limit the losses of the Canadian Dollar.

USD/CAD kicks off the week with its third consecutive day of gains on Monday, inching higher to near 1.3540 during the Asian trading session. The US Dollar (USD) could be bolstered by expectations that the Federal Reserve (Fed) will uphold its narrative of maintaining higher interest rates to combat inflation, which could further mitigate significant downside for the USD/CAD pair. The Fed is also set to update its Dot Plot projection, outlining interest rate expectations for the next one to five years.

Meanwhile, the US Dollar Index (DXY) struggles to sustain its position in positive territory, hovering around 103.50 at the time of writing. However, downward pressure on the US Dollar is evident due to a correction in US Treasury yields. The 2-year and 10-year US Treasury yields are currently at 4.72% and 4.30%, respectively.

On the flip side, the Canadian Dollar (CAD) may find some support from the surge in Crude oil prices. West Texas Intermediate (WTI) oil price continues its upward climb, reaching near $80.90 per barrel, by the press time. The positive momentum in Crude oil prices is driven by concerns over supply disruptions due to heightened geopolitical risks.

Traders are likely anticipating the release of the Canadian Consumer Price Index (CPI) data scheduled for Tuesday. Expectations suggest that the year-over-year consumer price will show an increase in February. A higher reading in the CPI could contribute a bullish sentiment for the Loonie Dollar (CAD). Additionally, the US Manufacturing Purchasing Managers Index (PMI) is set to be released on Thursday.

• USD/CAD clings to gains above 1.3500 as Fed rate cut hopes for June wane.
• Investors shift focus to the Fed’s interest rate decision in which the central bank is expected to maintain a status quo.
• The IEA raises Oil demand forecasts by 110K bpd for 2024.

The USD/CAD pair holds strength above the psychological support of 1.3500 in Friday’s European session. The Loonie asset turns sideways after a sharp recovery, prompted by diminished market expectations for the Federal Reserve (Fed) reducing interest rates in the June policy meeting.

Fed policymakers want to see price pressures declining for months to gain confidence that inflation will return sustainably to the desired rate of 2%. However, the United States Producer Price Index (PPI) data for February, released on Thursday, remained stubborn than expected due to rising gasoline and food prices. Tuesday’s consumer price inflation data for February was also sticky from expectations.

The US Dollar Index (DXY) trades sideways after a sharp recovery to 103.50 as investors shift focus to the Fed’s policy decision, which will be announced on Wednesday. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50% but the release of the dot plot and economic projections will be keenly watched.

Meanwhile, the Oil price turns sluggish after a two-day rally. The broader strength in the Oil price remains intact as the International Energy Agency (IEA) has raised its 2024 oil demand forecasts by 110K bpd (barrels per day). It is worth noting that Canada is the leading exporter of Oil to the US and higher oil prices support the Canadian Dollar.

USD/CAD rebounds from the upward-sloping border of the Ascending Triangle pattern, placed from the December 27 low at 1.3177. The horizontal resistance of the aforementioned pattern, formed on a daily timeframe, is plotted from the December 7 high at 1.3620. The near-term trend is bullish as the pair is trading above the 50-day Exponential Moving Average (EMA), which trades around 1.3500. However, investors would gain more conviction after a triangle breakout.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before forming the triangle – in this case, up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway.

The 14-period Relative Strength Index (RSI) falls back into the 40.00-60.00 region, which indicates persistent indecisiveness among investors.

Fresh upside would appear if the asset breaks above December 7 high at 1.3620, which will drive the asset towards May 26 high at 1.3655, followed by the round-level resistance of 1.3700.

On the flip side, a downside move below February 22 low at 1.3441 would expose the asset to February 9 low at 1.3413. A breakdown below the latter would extend the downside towards January 15 low at 1.3382.

USD/CAD daily chart

• USD/CAD extends its gains after stronger US Producer Price Index (PPI) data.
• US Core PPI remained at 2.0% YoY and rose by 0.3% MoM in February.
• Higher WTI price could provide support for the Canadian Dollar.

USD/CAD gains ground for the second successive session on Friday. Wednesday’s hotter-than-expected US Consumer Inflation data has reduced the likelihood of the Federal Reserve (Fed) cutting interest rates soon. This sentiment is further bolstered by Thursday’s Producer Inflation figures from the United States (US). As a result, the USD/CAD pair trades higher around 1.3540 at the time of this update.

The US Dollar Index (DXY) benefits from the hawkish sentiment surrounding the US Fed, which is considering prolonging its higher interest rates due to persistent inflationary pressures. US Treasury yields have increased in the previous four consecutive sessions, providing support to the US Dollar (USD). The DXY remains in the green zone around 103.40, with the 2-year and 10-year yields on US Treasury bonds correcting at 4.68% and 4.28%, respectively.

The US Core Producer Price Index (PPI) held steady with a 2.0% year-over-year increase in February, surpassing expectations which were set at 1.9%. The US PPI (YoY) experienced a 1.6% increase, exceeding both the expected 1.1% and the previous 1.0%.

US Retail Sales rose by 0.6% monthly, below the expected 0.8% in February, swinging from the previous decline of 1.1%. While Retail Sales Control Group improved to a flat 0.0%, compared to the previous decline of 0.3%. Traders will likely keep an eye on the preliminary US Michigan Consumer Sentiment Index for March, due to be released on Friday.

West Texas Intermediate (WTI) oil prices are on the rise for the third consecutive day, buoyed by signs of strong demand in the United States and an optimistic outlook for global consumption in 2024. This positive trend in Crude oil prices could offer support for the Canadian Dollar (CAD), as Canada is the largest oil exporter to the US. Consequently, this could limit the upside potential of the USD/CAD pair.

On Thursday, Canadian Manufacturing Sales showed a rebound to 0.2% in January, although it fell short of the forecasted 0.4%. Despite this, it marks a recovery from the previous month's decline of -1.1% (revised down from -0.7%). Investors will now turn their attention to Housing Starts and Wholesale Sales data scheduled for release on Friday.

The Loonie’s recent appreciation has been tepid considering the overall weakness of the US Dollar. In essence, the CAD has been the weakest of the strong over the past month. Economists at the National Bank of Canada analyze USD/CAD outlook.

Restrictive monetary policy in Canada can no longer be justified

• USD/CAD could test a nine-day EMA of 1.3497 and a psychological level of 1.3500.
• The major level of 1.3450 and the 38.2% Fibonacci retracement level of 1.3442 could act as key support levels.
• A break above the 1.3600 level could lead the pair to test March’s high of 1.3605.

USD/CAD retraces its recent losses from the previous session, edging upwards to near 1.3480 during Thursday's European session. The US Dollar (USD) receives support from higher US Treasury yields, likely influenced by recent data indicating sticky inflation in the United States (US).

The immediate resistance is at the nine-day Exponential Moving Average (EMA) at 1.3497, coinciding with the psychological level of 1.3500.

A breakout above the psychological level could provide upward support for the USD/CAD pair, with the next resistance at the major level of 1.3550. Further upside momentum may target the region around the psychological level of 1.3600, aligned with March’s high of 1.3605.

On the downside, the USD/CAD pair may encounter significant support around the major level of 1.3450, followed by the 38.2% Fibonacci retracement level at 1.3442. A breach below this level could exert downward pressure on the pair, potentially leading it toward the support zone near the previous week’s low of 1.3419 and the psychological level of 1.3400.

The technical analysis indicates mixed signals for the USD/CAD pair. The 14-day Relative Strength Index (RSI) is positioned below 50, suggesting bearish momentum. However, the Moving Average Convergence Divergence (MACD) suggests a potential momentum shift.

The MACD line is above the centerline, indicating bullish momentum, but there is divergence below the signal line. Traders may await confirmation from the MACD, a lagging indicator, to determine the direction of the trend.

USD/CAD: Daily Chart

• USD/CAD loses traction near 1.3468 on the softer USD. 
• The upbeat US CPI data might keep the Fed waiting until the summer before starting to cut rates.
• Markets believe the BoC will not move aggressively on interest rates. 
• Investors will focus on the Canadian Manufacturing Sales and the US Retail Sales, due on Thursday. 

The USD/CAD pair trades in negative territory for a second consecutive day during the early Asian session on Thursday. The US Dollar (USD) resumes its decline below the 103.00 mark and drags the pair lower. Investors await the US Retail Sales data on Thursday for fresh impetus, which is projected to rise 0.8% MoM in February. At press time, USD/CAD is trading at 1.3468, down 0.02% on the day. 

The hotter-than-expected US inflation data earlier this week might keep the Federal Reserve (Fed) on course to wait at least until the summer before starting to lower interest rates. The headline CPI rose 3.2% YoY from January’s reading of 3.1%, while the Core CPI ticked lower to 3.8% YoY from the previous reading of 3.9%. Market players will take more cues from US February Retail Sales data as it might influence the Fed’s next move in its March meeting scheduled for next week. The stronger report might convince the Fed to focus on more data and allow policymakers to avoid having to rush to cut rates, which might lift the US Dollar (USD) and create a tailwind for the USD/CAD pair. 

On the other hand, the Bank of Canada (BoC) left the interest rate unchanged earlier this month, as largely expected by the market. The BoC’s governor Tiff Macklem highlighted that lowering inflation close to target is the central bank’s priority. The markets anticipate that the BoC will not move aggressively or cut rates until after the Fed, which might be the upside potential for the Canadian Dollar (CAD) in the coming months.

Meanwhile, the rise in crude oil prices might boost the commodity-linked Loonie for the time being, as Canada is the largest oil exporter to the United States (US).

Moving on, the Canadian Manufacturing Sales is due on Thursday. On the US docket, traders will keep an eye on the US Retail Sales data for February, along with the Producer Price Index (PPI), Business Inventories, and usual weekly Initial Jobless Claims.

• USD/CAD could continue its winning streak on risk-off sentiment.
• US CPI YoY and MoM rose by 3.2% and 0.4%, respectively, in February.
• The higher Crude oil prices limit the losses of the Canadian Dollar.

USD/CAD could maintain its winning streak for the fourth consecutive session, with the pair trading higher around 1.3490 during the early European hours on Wednesday.

The US Dollar (USD) receives upward support from the prevailing market sentiment despite a potential for a rate cut by the Federal Reserve (Fed) in June, despite the release of upbeat Consumer Price Index (CPI) data on Tuesday.

According to the CME FedWatch Tool, the probability of a rate cut in March has decreased to 1.0%, while it stands at 15.6% for May. In June, the likelihood of a rate cut is estimated to be 66.6%.

In February, US CPI (YoY) increased by 3.2%, surpassing estimates of 3.1%. The monthly inflation met expectations at 0.4%, higher than the previously observed 0.3%. US Core CPI rose by 3.8% year-over-year, above the anticipated 3.7% but below the previous reading of 3.9%. The month-over-month figure remained steady at 0.4%, against the market expectations of 0.3%.

The rise in Crude oil prices may have provided upward support for the Canadian Dollar (CAD), thereby capping the upside potential of the USD/CAD pair. West Texas Intermediate (WTI) oil price edged higher to nearly $77.90 per barrel during the European hours at the time of writing.

Crude oil prices are anticipated to receive upward support due to a strong outlook for global demand. The Organization of the Petroleum Exporting Countries (OPEC) has maintained its forecast for relatively robust growth in global oil demand in 2024 and 2025.

The economic calendar for the Canadian Dollar does not contain high-impact data for the week. Attention will be on the US Core Producer Price Index (PPI) and Retail Sales data scheduled for release on Thursday.

• USD/CAD trades with a mild positive bias around 1.3492 in Wednesday’s early Asian session. 
• The upbeat US CPI inflation data for February might convince the Fed to wait until the summer before starting rate cuts. 
• Moody’s Analytics stated that the BoC is at risk of weakening the economy by not cutting interest rates sooner.

The USD/CAD pair posts modest gains below the 1.3500 mark during the early Asian session on Wednesday. The stronger-than-expected US inflation number weighs on market sentiment and provides some support for the pair. The US February Retail Sales will be the highlight for this week, which is projected to improve to 0.8% MoM. USD/CAD currently trades near 1.3492, adding 0.01% for the day.  

The US inflation, as measured by the Consumer Price Index (CPI), unexpectedly increased to 3.2% YoY in February, keeping the Federal Reserve (Fed) on course to wait at least until the summer before starting to cut interest rates. Additionally, the Core CPI, excluding volatile food and energy prices, rose 0.4% MoM and 3.8% YoY, stronger than the estimation. The February CPI inflation data will play an important role in the Fed’s rate forecast. Investors anticipate the US central bank to keep rates between 5.25% and 5.5% in its March meeting scheduled for next week. 

On the Loonie front, analysts are concerned about the economic slowdown in the Canadian economy. Moody’s Analytics stated that the Bank of Canada (BoC) is at risk of weakening the economy by not cutting interest rates sooner. Earlier this month, the BoC left the interest rate unchanged at 5% for the fifth consecutive meeting. The BoC governor Tiff Macklem said that core inflation remains a concern and emphasized that it was premature to talk about rate cuts.

Looking ahead, Canada’s Manufacturing Sales, Housing Starts, and Wholesale Sales for January will be published on Thursday. On the US docket, Retail Sales for February will be a closely watched event this week. This event could give a clear direction to the USD/CAD pair. 

USD/CAD edges slightly lower. Economists at Scotiabank analyze the pair’s outlook.

Firm resistance at 1.3510/1.3520