USD/CAD Falls Below 1.4100 as Markets Await Canadian Inflation Data

Traders' Opinions

Summary:

The Canadian Dollar advances as USD/CAD falls below 1.4100 ahead of Canada's CPI report. Changing Fed rate expectations weigh on the US Dollar, while oil-driven inflation complicates the Bank of Canada's policy outlook.

SELL USDCAD

EXP

TRADING

1.40800

Entry Price

1.39900

1.41500

1.41101 -0.00267 -0.19%

0.0

Pips

Flat

1.39900

Exit Price

1.40800

Entry Price

1.41500

The Canadian Dollar strengthened against the US Dollar on Monday, pushing USD/CAD down 0.3% to below 1.4100, its lowest level in nearly a month. The move extends the pair’s retreat from last week’s high near 1.4300 as traders prepare for Canada’s September inflation report.

Canadian headline inflation is expected to rise 0.2% month-on-month after falling 0.1% in August. The annual rate is forecast to accelerate to 3.2% from 3.0%, keeping price pressures in focus ahead of the Bank of Canada’s October 28 policy decision.

Higher Oil prices are complicating the central bank’s policy outlook. Governor Tiff Macklem has indicated that rising energy costs make it harder to maintain the current policy stance. However, trade uncertainty and a softer labour market could discourage an immediate rate increase. Markets are fully pricing in a 25-basis-point hike in December, with around 9 basis points priced in for next week’s meeting.

The US Dollar, meanwhile, remains under pressure as expectations of another Federal Reserve rate hike have eased. Markets now assign a 15% probability to a further increase, down from nearly 60% a month ago. With Fed officials entering their blackout period, investors will have fewer policy signals to guide positioning.

For USD/CAD, the combination of a softer Greenback and relatively firm Oil prices continues to favour the Canadian Dollar. However, expectations for BoC tightening are already substantial, potentially limiting further CAD gains. Canada’s inflation data could provide the next significant catalyst for the pair.

Technical Analysis

USD/CAD is extending its decline after breaking below the 1.4200 range floor, with prices trading near 1.4078, the lowest level since late September. The slide has erased the entire rally from the Sep 23-30 base, and the series of lower highs and lower lows suggests sellers remain in short-term control, although the move is stretched and a corrective bounce cannot be ruled out.

The immediate focus is on the 1.4082-1.4097 resistance region, the origin of the previous advance, which now acts as supply. A rejection here, or a failure to reclaim it on an H1 closing basis, could strengthen bearish momentum and open the door toward 1.4069, followed by the 1.4000 psychological level. If sellers maintain control, the pair could extend toward the 1.3992-1.3976 zone.

However, the pair remains vulnerable to a squeeze if the recovery gains traction. A sustained move above 1.4100 could trigger a rebound toward 1.4124, the last swing high, while a deeper correction could bring 1.4170 and the broken 1.4200-1.4209 area back into focus. The critical upside level remains 1.4130, and a close above it would invalidate the bearish setup.

Overall, USD/CAD has a cautiously bearish short-term outlook, with a sustained break below 1.4069 needed to confirm further downside toward 1.3992-1.3976. Until that breakdown occurs, the pair could still stage a corrective retest of broken support within the broader downtrend.

TRADE RECOMMENDATION

SELL USD/CAD

ENTRY PRICE: 1.4080

STOP LOSS: 1.4150

TAKE PROFIT: 1.3990

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USD/CAD Falls Below 1.4100 as Markets Await Canadian Inflation Data

Technical Analysis

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