USD/CAD Holds Gains Despite Softer US Producer Inflation

Traders' Opinions

Summary:

USD/CAD holds around 1.3820 after softer-than-expected US PPI reduced immediate Fed tightening pressure. High oil prices continue to support the Canadian Dollar, leaving Friday’s US CPI report as the next major directional catalyst.

BUY USDCAD

EXP

TRADING

1.38500

Entry Price

1.42500

1.37500

1.38703 +0.00378 +0.27%

0.0

Pips

Flat

1.37500

Exit Price

1.38500

Entry Price

1.42500

USD/CAD trades around 1.3820, holding modest gains as investors digest the latest US inflation figures and turn their attention to Friday’s Consumer Price Index report. The pair remains caught between renewed uncertainty surrounding the Federal Reserve outlook and continued support for the Canadian Dollar from elevated crude oil prices.

The latest US Producer Price Index came in softer than markets had anticipated, easing some of the concern that upstream inflation pressures were accelerating as rapidly as previously feared. The result was particularly important after markets had positioned for a sizeable increase in producer inflation amid the recent surge in energy costs.

The softer PPI reading has consequently tempered expectations for an immediate Fed rate hike, limiting the Dollar’s ability to extend its recovery. However, the data has not completely removed the possibility of further tightening. Energy prices remain elevated, Treasury yields are still high and the inflationary consequences of the continuing US-Iran confrontation remain a significant source of uncertainty.

This makes Friday’s US CPI report the more important test for Fed expectations. A hotter-than-expected consumer inflation reading could quickly revive speculation surrounding another rate increase and provide renewed support for the Greenback. Conversely, evidence that underlying inflation remains contained would strengthen the argument for the Fed to leave rates unchanged.

The Canadian Dollar, meanwhile, continues to receive support from high crude oil prices. Persistent concerns surrounding shipping and supply through the Strait of Hormuz have kept energy markets elevated, providing a favourable backdrop for the Loonie given Canada’s status as a major oil exporter.

US-Canada trade tensions have also failed to generate substantial selling pressure on the Canadian currency. Despite new US restrictions affecting selected Canadian products, the Loonie has remained relatively resilient, suggesting that stronger domestic and commodity-related drivers continue to outweigh the immediate impact of the dispute.

The broader USD/CAD picture therefore remains finely balanced. The pair has managed to recover from recent lows, but the advance has yet to develop into a convincing Dollar breakout. Softer producer inflation has weakened one of the arguments for an immediate Fed hike, while elevated oil continues to favour the CAD.

Friday’s CPI release now represents the next major catalyst. A significant upside surprise could give USD/CAD the momentum required to extend its recovery toward the 1.3900 region, while softer inflation could return attention to the downside and place the recent recovery under renewed pressure.

Technical Analysis

USD/CAD is beginning to show signs of a stronger bullish recovery on the 4-hour chart after repeatedly defending the major demand zone around 1.3740–1.3765. Price has rebounded toward 1.3845, and the latest sequence suggests buyers are gradually gaining control following several failed attempts by sellers to extend the broader decline.

The 1.3840–1.3850 region is the immediate hurdle. Price is currently pressing into this area, and a sustained break above it would strengthen the short-term reversal structure and open the way toward the more significant resistance zone around 1.3940–1.3960. This area previously acted as support before the August breakdown and is therefore likely to attract some profit-taking or renewed selling pressure on the first test.

The projected structure suggests that such resistance may only produce a temporary correction rather than another major bearish leg. If USD/CAD can pull back while maintaining a higher low above the 1.3840 region, buyers could regain momentum and attempt a decisive breakout through 1.3960. That would represent a much more important change in the four-hour structure and expose 1.4120–1.4140 as the next major upside objective.

Beyond that, the chart leaves room for a larger recovery toward 1.4240–1.4270, which represents the major supply zone near the June highs. Reaching this area would effectively unwind a substantial portion of the decline that dominated USD/CAD between late June and August.

The bullish scenario remains dependent on the 1.3740–1.3765 support zone continuing to hold. A return below this floor would invalidate the developing reversal and restore the broader bearish structure. For now, however, repeated rejection from this demand area, followed by the recovery toward 1.3850, suggests that downside momentum is losing strength.

Overall, the chart favors a bullish recovery with corrections along the way. A break above 1.3850 would provide the first confirmation, while a move through 1.3940–1.3960 would offer much stronger evidence that USD/CAD is transitioning from its previous downtrend into a broader upside reversal.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.3850

STOP LOSS: 1.3750

TAKE PROFIT: 1.4250

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USD/CAD Holds Gains Despite Softer US Producer Inflation

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