- The USD/CAD outlook remains under pressure amid a cooling US CPI data.
- BoC’s paused easing cycle and stable crude oil prices continue to support the CAD.
- Market participants now await Canada’s retail sales report for fresh impetus.
USD/CAD is under pressure as weaker US inflation data weighs down the dollar. The pair has been trading lower in the second session, around 1.3780 in the Asian hours. The price action has been sluggish, lacking firm conviction.
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The recent US CPI report changed the expectations. Headline inflation improved to 2.7% in November, lower than the 3.1% estimate. Meanwhile, the core CPI decreased to 2.6%, the lowest since 2021. Gains were modest in the month, which supports the perception that the price pressures are subsiding; markets now price in a faster rate-cut path by the Federal Reserve.
The lower inflation reading diminished the dollar’s short-term demand. Treasury yields fell, and the U.S. dollar declined against its peers. The longer-term positioning remains mixed, yet the near-term momentum is evidently dampened.
The dollar stays pressured by political developments as well. US President Donald Trump indicated that the next Federal Reserve chair will prefer much lower interest rates and added that an announcement on the successor of Jerome Powell was imminent. The comments strengthened anticipations of further accommodative policy in the future.
On Canada’s side, the Bank of Canada maintained rates at 2.25% last week, noting the pause as an appropriate policy. Inflation is near its target, while economic activity remains resilient. This has helped mitigate downside risks for the Canadian dollar. Oil prices have also boosted the Canadian dollar, also known as the loonie. Crude has stabilized after recent volatility, while the US blockade of Venezuelan oil provided a slight respite to the falling oil prices.
Focus now shifts to Canadian retail sales data. A solid reading would reinforce domestic stability and could extend downside pressure on the pair. A weaker print may keep USD/CAD range-bound.
For now, the pair remains caught between a softer US dollar and steady Canadian fundamentals, pointing to contained price action in the near term.
USD/CAD Technical Outlook: Tight Range Around 20-MA
The USD/CAD remains wobbling between 20- and 50-period MAs, consolidating in a tight range, with RSI flat near the 50.0 level. A bullish breakout could be confirmed if prices move above the 1.3800 level. In this case, the key resistance around December highs and 100-period confluence could be tested at 1.3875 ahead of 200-period MA at 1.3965.
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On the other hand, a downside breakout below 1.3730 could lead to a deeper correction towards the July lows of 1.3580. The 1.3730 is not only the lower end of the recent range, but it’s also a strong horizontal level, suggesting a lesser chance of downside breakout.
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