- USD/CAD struggles to gain any meaningful traction amid a combination of diverging forces.
- Monday’s hotter Canadian inflation figures and rising crude oil prices underpin the Loonie.
- Geopolitical risks and inflation jitters lend support to the safe-haven USD and spot prices.
The USD/CAD pair struggles to build on the overnight bounce from the 200-day Simple Moving Average (SMA) support near the 1.3845 region, or the lowest level since June 3, and is seen consolidating during the Asian session on Tuesday. Spot prices currently trade around the 1.3870 zone, unchanged for the day, amid a combination of diverging forces.
Monday’s hotter Canadian consumer inflation figures and rising crude oil prices continue to underpin the commodity-linked Loonie, which, in turn, acts as a headwind for the USD/CAD pair. Meanwhile, inflation risks stemming from higher oil prices, along with the US-Iran standoff, help revive demand for the safe-haven US Dollar (USD). This holds back traders from placing fresh bearish bets on the currency pair and limits the downside.
Statistics Canada reported that Canada’s headline Consumer Price Index (CPI) increased 0.5% in July and the yearly rate rose to 3%, above the 2.9% market forecast and up from 2.8% in June. Adding to this, the Bank of Canada’s (BoC) core CPI measure rose 2.3% YoY, up from 2.1%, while the monthly reading increased 0.2% following a 0.1% rise previously. However, the BoC is likely to keep its key policy rate on hold for the rest of this year.
On the geopolitical front, President Donald Trump repeated his idea of declaring the critical Strait of Hormuz as a US territory and threatened to bomb Oman if it gets in the way. Trump added that the US is not seeking an extension of the Memorandum of Understanding (MoU) with Iran, which expired on Monday, keeping the geopolitical risk premium in play. This, along with inflation risks stemming from higher oil prices, supports the USD.
Investors remain worried that volatile energy prices would rekindle price pressures and force the US Federal Reserve (Fed) to adopt a more hawkish stance. Hence, FOMC Minutes, due for release on Wednesday, will be looked upon for more cues about the Fed’s future policy path, which will drive the USD. Apart from this, the incoming geopolitical headlines and oil price dynamics should provide some impetus to the USD/CAD pair.
USD/CAD daily chart
Technical Analysis
The USD/CAD pair defends the 200-day SMA at 1.3848, which keeps the broader bias modestly bullish. Although downside attempts are being absorbed near the said support, a clean break beneath would be seen as a key trigger for bearish traders and open the door to a deeper correction. However, holding above it would keep the path of least resistance tilted higher in the near term.
