USD/CAD Hits 1.3728 as CPI Surprise Fuels Dollar Strength, Eyes 1.3760
The USD/CAD pair held steady near 1.3728 during Wednesday’s session, briefly pausing its four-day rally but showing little downside...
Quick overview
- The USD/CAD pair remains steady near 1.3728, pausing its four-day rally amid mixed economic signals.
- U.S. inflation data exceeded expectations, reducing the likelihood of a September Fed rate cut to 54%.
- Despite a positive Canadian CPI report, the loonie struggles due to declining crude oil prices impacting demand.
- Technically, USD/CAD is testing a critical resistance zone, with a bullish outlook if it breaks above 1.3760.
The USD/CAD pair held steady near 1.3728 during Wednesday’s session, briefly pausing its four-day rally but showing little downside momentum. A tug-of-war between resilient U.S. inflation data and soft Canadian oil-linked demand has kept the pair comfortably supported above the 1.3700 mark.
June’s U.S. Consumer Price Index came in hotter than expected, with rising costs in imported goods driving headline inflation. The market quickly adjusted, slashing the odds of a September Fed rate cut to 54%, down from nearly 70% just a week earlier. Dallas Fed President Lorie Logan further added to the hawkish tone, stating that interest rates may need to stay elevated longer to bring inflation down to the 2% target.
The data helped the U.S. dollar stay firm across major pairs, acting as a safe-haven against uncertainty and bolstering its gains against the Canadian dollar.
Canadian CPI Beats, But Oil Weighs on Loonie
On the Canadian side, inflation data surprised to the upside. June CPI showed that domestic price pressures remain sticky. Normally, this would boost expectations of rate action from the Bank of Canada (BoC) and strengthen the CAD. However, the reaction was muted.
Why? Crude oil prices, one of Canada’s key exports, continued to slide due to concerns over weak global demand. That weakness in oil markets has undercut any potential boost to the loonie from higher inflation.
Quick Highlights:
- June U.S. CPI: +0.3% MoM, 2.7% YoY
- Canadian June CPI: beat forecasts but failed to lift CAD
- Oil weakness limits upside for Canadian dollar
- Fed cut odds now just 54% for September (CME FedWatch)
With both currencies reacting to different drivers, the USD/CAD pair remains in a tight yet bullish zone, awaiting a catalyst for breakout or pullback.
Bulls Target Breakout Above 1.3760
Technically, USD/CAD is approaching a critical resistance zone between 1.3735 and 1.3760. This region has acted as a supply wall in the past—but the more times a level is tested, the more likely it breaks.
- Current Price: 1.3728
- Resistance: 1.3735, 1.3760, 1.3789
- Support: 1.3703, 1.3696 (SMA 50), 1.3672
- Trendline Support: Rising since early July
- RSI (14): 60.23 – bullish and rising
The RSI remains above 60, reflecting positive momentum, while the pair continues to respect its rising trendline. The 50-period SMA at 1.3696 offers dynamic support.
Trade Outlook:
- Bullish Scenario: Break and close above 1.3760 targets 1.3789 and possibly 1.3800+
- Bearish Risk: Failure to clear 1.3760 could lead to a pullback toward 1.3703 or 1.3672
Final Word: Watch Oil and Fed Talk
Traders should keep an eye on the next round of U.S. economic data, Fed speeches, and oil market headlines. If WTI crude stabilizes and the Fed softens its language, the loonie could catch a bid. But for now, momentum favors USD/CAD bulls, especially if the pair clears the 1.3760 hurdle.
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