CAD

• USD/CAD declines to near 1.3860 in Monday’s early European session. 
• Lower Fed rate hike expectations weigh on the US Dollar. 
• Major financial institutions expect the BoC to remain on hold for the remainder of 2026.

The USD/CAD pair edges lower to around 1.3860 during the early European session on Monday. The US Dollar (USD) extends the decline against the Canadian Dollar (CAD) as traders pare bets on the US Federal Reserve (Fed) rate hikes. Canada’s Consumer Price Index (CPI) inflation data for July will take center stage later on Friday. 

The pair declines to the lowest since June 3 after a soft run of US economic data, including an unexpected drop in Retail Sales. Signs of easing inflation in the US have prompted the market to give up bets for an imminent rate hike from the US central bank. A rate hike next month is now priced at 30%, down sharply from about 40% a week earlier, according to the CME FedWatch tool.

“This points to a material slowdown in real consumer spending growth in the third quarter,” said Sal Guatieri, a senior economist at BMO Capital Markets. “This, together with a weaker jobs report and subdued core CPI inflation, raises the odds of the FOMC staying patient again in September,” Guatieri added.

The Bank of Canada (BoC) left its key overnight interest rate unchanged at 2.25% during its July policy meeting, marking the sixth consecutive hold. BoC Governor Tiff Macklem emphasized that while the Canadian central bank is looking through near-term energy shocks, it “will not let higher energy prices become persistent inflation.”

The BoC will hold the next policy meeting on September 2. RBC Economics and CIBC expect that the central bank will remain on hold for the remainder of 2026 to fully monitor economic conditions.

Canada inflation seen contained as BoC pause expectations firm

Strategists at Brown Brothers Harriman expect the upcoming Canada July CPI report to underscore subdued underlying price pressures and support an extended BoC pause. They look for headline CPI to edge up to “2.9% y/y vs. 2.8% in June,” while stressing that “underlying inflation [is] contained under 2%.” BBH forecasts “core CPI (ex. food & energy) … at 1.8% y/y vs. 1.8% in June,” with “core CPI (average of trim and median) … projected at 1.85% for a second straight month,” reinforcing the view that core inflation remains firmly anchored below the BoC’s 2% threshold.

Technical Analysis: USD/CAD

In the daily chart, USD/CAD remains under pressure, holding beneath the 100-day simple moving average (SMA) and the Bollinger middle band, which keeps the near-term bias bearish despite a modest rebound off the lower band. Price is hovering just above the Bollinger lower band, while the Relative Strength Index (14) sits in oversold territory around 28, hinting that downside momentum is stretched but not yet reversed.

On the topside, initial resistance is located at the 100-day SMA around 1.3920, with a stronger cap at the Bollinger middle band near 1.4010; a daily close above these levels would be needed to ease the current downside bias, with the upper band at 1.4170 acting as a subsequent barrier. On the downside, immediate support is aligned with the Bollinger lower band at 1.3855; a clear break below this floor would open the way to further weakness, while holding above it would signal an attempt to consolidate after the recent slide.

• USD/CAD trades lower as the Canadian Dollar gains.
• The US and Canada are close to reaching a deal before the tariff deadline.
• Investors expect the Fed to leave policy rates unchanged again in September.

The Canadian Dollar (CAD) outperforms a majority of its currency peers on Friday, with the USD/CAD pair trading 0.32% lower at around 1.3888. The Canadian currency gains on hopes of a United States (US)-Canada interim deal.

A Canadian government source directly familiar with trade negotiations ‌with the United States said on Thursday that talks were progressing well and Washington also wanted an agreement before a new US tariff deadline on August 19, Reuters reports.

Meanwhile, weakness in the US Dollar due to receding fears of a Federal Reserve (Fed) interest rate hike in the September meeting has also weighed on the Loonie pair. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.23% lower to near 99.70.

Fed patience holds as US inflation trend improves but remains above target

Analysts at Wells Fargo observe that “inflation remains elevated, but the trend is improving,” noting that “while inflation remains above target, the recent upturn appears narrow rather than broad-based.” Against this backdrop, they judge that “the Fed remains stuck on hold,” with policymakers reluctant to shift policy until they see clearer evidence that price pressures are durably contained.

Commerzbank’s Bernd Weidensteiner similarly highlights that the inflation data for July “indicated only moderate inflationary pressure; consumer prices excluding food and energy rose by 0.2% from the previous month, while the year-over-year rate fell slightly to 2.5%.” He adds that, although this outcome was broadly in line with expectations, “these figures, combined with the unexpectedly weak jobs data, eased the pressure on the Fed to raise its key interest rates anytime soon.” Together, the banks’ commentary underscores a picture of gradually improving but still above-target US inflation, reinforcing the case for the Fed to remain on hold for now.

USD/CAD Technical Analysis

USD/CAD trades lower at around 1.3888, keeping a bearish near‑term tone as spot holds under the 100‑day simple moving average (SMA) at 1.3920 and the 50.0% Fibonacci retracement at 1.3902. The pair has retreated from recent highs toward the middle of the prior upswing range, while the Relative Strength Index (14) at 29.95 slips into oversold territory, hinting that downside momentum is stretched but not yet reversed.

On the topside, immediate resistance is located at the 50.0% retracement of the latest move at 1.3902, followed by the 100‑day SMA at 1.3920; a sustained break above this band would ease the current bearish pressure and expose the 38.2% level at 1.3984 and then the 23.6% retracement at 1.4085. On the downside, initial support is seen at the 61.8% Fibonacci retracement at 1.3819, ahead of the 78.6% level at 1.3702, while deeper losses would bring the structural swing low region near the 100.0% retracement at 1.3553 into focus.

• USD/CAD languishes near a two-month low as bullish oil prices continue to underpin the Loonie.
• Geopolitical uncertainties, inflation risks and Fed hike bets support the USD and help limit losses.
• Traders also seem hesitant and await the latest US inflation figures before placing directional bets.

The USD/CAD pair is seen consolidating its recent losses to a two-month low, touched last week, and trading below mid-1.3900s during the Asian session on Tuesday. Traders now seem hesitant to place aggressive directional bets amid a mixed fundamental backdrop and ahead of the crucial US inflation figures.

The US-Iran standoff dampens hopes for a swift reopening of the Strait of Hormuz, which, along with restricted shipping traffic through the Bab el-Mandeb Strait, continues to fuel supply concerns and supports crude oil prices. Moreover, Friday’s upbeat Canadian employment details seem to underpin the commodity-linked Loonie and act as a headwind for the USD/CAD pair, though a modest US Dollar (USD) strength helps limit the downside.

Investors remain worried about inflation risks stemming from volatile oil prices, which might force the US Federal Reserve (Fed) to adopt a more hawkish stance. In fact, traders are still pricing in a greater possibility that the US central bank will hike interest rates at least once by the end of this year. This, along with geopolitical uncertainties, assists the safe-haven buck in preserving the previous day’s modest gains and acts as a tailwind for the USD/CAD pair.

Traders, however, opt to wait for more cues about the Fed’s future policy path before positioning for the next leg of a directional move. Hence, the focus will remain glued to the US Consumer Price Index (CPI) and the Producer Price Index (PPI), due for release on Wednesday and Thursday, respectively. The crucial data, along with further developments surrounding the Middle East crisis, should provide a fresh impetus to the USD and the USD/CAD pair.

USD/CAD daily chart

Technical Analysis

The USD/CAD pair trades just above the 100-day Simple Moving Average (SMA) at 1.3918, with a break below this level likely to expose the recent closing area around 1.3900. On the flip side, spot prices would need to clear recent swing highs to extend the advance, while the close proximity of price to the 100-day SMA hints at a consolidation phase rather than an aggressive trend move.

• USD/CAD kicks off the new week on a slightly positive note, though it lacks follow-through.
• Geopolitical uncertainties and bets for at least one Fed rate hike this year support the USD.
• Friday’s upbeat Canadian jobs data and oil prices underpin the Loonie, capping spot prices.

The USD/CAD pair attracts some dip-buyers at the start of a new week and recovers a part of Friday’s heavy losses to the 1.3925 area, or a nearly two-month low. Spot prices climb back above mid-1.3900s during the Asian session, though the upside potential seems limited amid a combination of diverging forces.

As investors look past Friday’s disappointing US Nonfarm Payrolls (NFP) report, the US-Iran standoff keeps the geopolitical risk premium in play and acts as a tailwind for the safe-haven US Dollar (USD). Furthermore, bets that the US Federal Reserve (Fed) will raise borrowing costs by the end of this year amid inflation risks stemming from recovering crude oil prices lend support to the Greenback and the USD/CAD pair.

Meanwhile, uncertainties surrounding the reopening of the Strait of Hormuz remain supportive of a bid tone surrounding crude oil prices, which is seen underpinning the commodity-linked Loonie. The Canadian Dollar (USD) could further benefit from the upbeat domestic jobs report, released on Friday. This, in turn, might hold back traders from placing aggressive bullish bets on the USD/CAD pair and cap any meaningful gains.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent pullback from the vicinity of mid-1.4200s, or the year-to-date high touched in June, has run its course and positioning for further upside. Traders might also opt to wait for this week’s release of US inflation figures. Moreover, further developments surrounding the Middle East crisis will be looked upon for some impetus.

USD/CAD daily chart

Technical Analysis:

The USD/CAD pair’s ability to stay above the 100-day Simple Moving Average (SMA) at 1.3917 suggests underlying demand is still cushioning pullbacks, even as upside momentum appears measured. A break would expose a deeper correction. On the flip side, traders may look to psychological round figures and recent swing highs to define the next topside hurdles as long as spot prices hold above the 100-day SMA.