Key Moments
- USD/CAD trades slightly lower near 1.4200 as the Canadian Dollar edges higher ahead of the U.S. CPI release at 12:30 GMT.
- Market forecasts point to headline U.S. CPI at 3.6% YoY and core CPI at 2.5% YoY, both above August readings.
- WTI crude has climbed a little over $96.00 from last week’s six-week low of $86.32, underpinning support for the oil-linked Canadian Dollar.
CAD Strengthens Modestly as Dollar Index Backs Off Highs
The Canadian Dollar is posting modest gains against the U.S. Dollar on Wednesday as investors await the latest U.S. Consumer Price Index data, scheduled for release at 12:30 GMT. During Asian trading hours, USD/CAD edged lower toward 1.4200, extending the recent pullback in the Greenback.
The U.S. Dollar Index (DXY), which tracks the currency against a basket of six major peers, is down 0.1% around 102.11 at the time of writing. The index has eased from the yearly high of 102.61 registered on Monday, reflecting a softer tone in the U.S. Dollar heading into the inflation report.
Inflation Expectations and Fed Policy Outlook
Consensus projections indicate that the upcoming CPI release will show headline U.S. inflation accelerating to 3.6% year-on-year from 3.4% in August. Core CPI, which excludes food and energy, is expected to rise to 2.5% year-on-year compared with the previous 2.4% reading. The figures are seen as pivotal for shaping expectations around the Federal Reserve’s next policy moves.
Market-based pricing, as reflected in the CME FedWatch tool, currently indicates that traders anticipate the Fed will keep interest rates unchanged at its policy meeting later this month, followed by a rate increase in December.
Strategists at Societe Generale underscore the importance of Wednesday’s CPI release as the primary short-term catalyst for Fed expectations. They argue that a core inflation reading of “2.5% (the market consensus)” would leave the broader policy outlook largely intact. According to their assessment, such an outcome implies “little chance of any shift in market expectations: no rate hike this month, but a very strong chance of one in December and another in Q1.”
Oil Price Rally Supports the Loonie
On the Canadian side, the currency continues to draw support from firmer crude prices. Ongoing tensions between Saudi Arabia and Iran-backed Houthis are cited as factors helping to sustain higher oil prices. As Canada is a net exporter of oil, the Canadian Dollar typically benefits in an environment of elevated energy prices.
West Texas Intermediate (WTI) crude has rebounded a little over $96.00 from a six-week low of $86.32 recorded last week, enhancing the appeal of the oil-linked Loonie.
USD/CAD Technical Picture
On the daily chart, USD/CAD is trading at 1.4203. The pair maintains a constructive near-term tone while holding above the 20-period exponential moving average (EMA) at 1.4163, indicating that bullish momentum remains in place and continues to attract trend-following participants.
The 14-period Relative Strength Index stands at 59.0, firmly in positive territory yet below overbought conditions. This configuration suggests buyers remain in command and that there is scope for additional upside before momentum signals become stretched.
On the downside, the immediate technical floor is located at the 20-day EMA at 1.4163. This level underpins the most recent advance, and a break below it would be required to signal a more pronounced corrective move. While the current data set does not specify clear upside resistance levels, the broader structure implies that only a sustained move back under the EMA would materially dent the bullish bias and open the door to a wider consolidation or deeper pullback in USD/CAD.
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