USD/CAD Rises as Soft Canadian Inflation Weighs on Loonie

Traders' Opinions

Summary:

USD/CAD climbed during Thursday’s European session as weaker-than-expected Canadian inflation data and falling oil prices pressured the Canadian Dollar, while hawkish Federal Reserve expectations continued supporting the US Dollar.

BUY USDCAD

EXP

PENDING

1.37600

Entry Price

1.39000

1.36900

1.37898 +0.00454 +0.33%

Pips

PENDING

1.36900

Exit Price

1.37600

Entry Price

1.39000

The Canadian Dollar weakened against the US Dollar on Thursday, pushing USD/CAD toward the 1.3765 level during early European trading as softer-than-expected Canadian inflation data and declining oil prices weighed heavily on the commodity-linked currency.

Canada’s annual inflation rate accelerated to 2.8% in April from 2.4% previously, marking its highest level in nearly two years after gasoline prices surged amid tensions surrounding Iran. However, the reading still missed market expectations of 3.1%, leading investors to scale back expectations for further aggressive tightening from the Bank of Canada.

In my view, markets focused less on the rise in headline inflation and more on the signs that underlying price pressures may not be accelerating fast enough to justify a more hawkish policy stance. That shift immediately pressured the Canadian Dollar.

The Loonie also came under additional strain after oil prices retreated following comments from US President Donald Trump, who said negotiations with Iran had entered the “final stages.” The remarks fueled optimism that tensions in the Middle East could ease, potentially stabilizing global crude supplies and reducing the geopolitical premium embedded in oil markets.

Because Canada is one of the world’s largest oil exporters, weaker crude prices tend to undermine the Canadian Dollar by reducing export revenue expectations and weakening investor sentiment toward commodity-linked assets.

Meanwhile, the US Dollar remained supported by growing expectations that the Federal Reserve may keep interest rates elevated for longer. Minutes from the Fed’s April meeting showed policymakers remain concerned about persistent inflation risks, with several officials indicating additional rate hikes could still be necessary if price pressures fail to moderate.

The increasingly hawkish Fed outlook has continued lifting US Treasury yields, strengthening demand for the Greenback against major peers. Investors are now turning their attention to the upcoming US S&P Global PMI data, which could provide fresh clues on the resilience of the US economy and the future direction of Federal Reserve policy.

Technical Analysis

From a technical perspective, USD/CAD remains firmly positioned within a well-defined bullish channel on the 2-hour chart, with price action continuing to respect the ascending structure that has guided the pair higher throughout May. The broader trend remains constructive as buyers maintain control above the lower boundary of the channel, while repeated rebounds from dynamic support levels continue to reinforce upside momentum.

The pair is currently consolidating near the 1.3760–1.3770 region after a steady sequence of higher highs and higher lows. Although near-term momentum has slowed slightly following the latest rally, the inability of sellers to force a deeper pullback suggests bullish sentiment remains intact. Recent price action also indicates that dips toward the lower trendline are continuing to attract buying interest rather than triggering a broader reversal.

Immediate support is now located around the 1.3740–1.3720 zone, which aligns closely with the midpoint of the ascending channel and recent consolidation lows. A sustained move below this region would represent the first meaningful sign of weakening bullish momentum and could expose the lower boundary of the channel near 1.3690–1.3700. If bearish pressure intensifies further and the pair breaks decisively below channel support, USD/CAD could extend losses toward the 1.3650 region, where previous breakout structures remain visible.

However, unless the pair breaks below the ascending structure entirely, the broader technical outlook continues favoring additional upside. On the topside, immediate resistance is located near 1.3780, followed by the upper channel boundary around 1.3840–1.3850. A sustained breakout above this resistance region would likely accelerate bullish momentum and open the door for a move toward the psychologically important 1.3900 handle.

The overall structure suggests the recent consolidation phase is corrective rather than indicative of trend exhaustion. Buyers continue defending higher support zones, while the channel itself remains intact with no significant breakdown signals emerging on the chart. The projected bullish continuation path also implies expectations for another upward leg once the current consolidation phase concludes.

Momentum conditions appear supportive of further gains. While the pair may experience short-term pauses or shallow retracements following its recent advance, the broader trend remains biased to the upside as long as price action continues holding above channel support. The gradual slope of the rally also reflects controlled bullish momentum rather than an overextended move, reducing the immediate risk of a sharp reversal.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.3765

STOP LOSS: 1.3690

TAKE PROFIT 1: 1.3840

TAKE PROFIT 2: 1.3900

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