- The US CPI does not meet the estimates, the Fed perspective will define the short -term trajectory of the USD/CAD.
- The USD/CAD proves a key inflection zone below psychological resistance.
- The Loonie pair monitors the economic perspective as winds against inmates increase.
The USD/CAD is at a critical crossroads after the publication of the US Consumer Price Index (IPC) of April, which presented a slight missing surprise in key inflation components. With several high profile speeches of the Federal Reserve (Fed) still ahead this week, the short -term trajectory of the torque could be molded by the expectations of evolving rates and the divergent policy signs between the Fed and the Bank of Canada (BOC).
At the time of writing, the US dollar (USD) is quoted around 1,3998, 0.17% more against the Canadian dollar (CAD), while the Loonie remains under pressure in the middle of a growing approach to the divergence of relative policies and winds against linked to raw materials.
The US inflation is softened in April, reinforcing the case for fed rate cuts
The US USA report revealed a clear moderation in inflationary pressures.
The general CPI rose 0.2% (intermensual), being below the consensus of 0.3% and bouncing a fall of -0.1% in March.
In interannual terms, general inflation slowed to 2.3%, also below the expectations of 2.4%. The underlying IPC, which excludes food and energy, rose 0.2% (intermensual), below the 0.3% estimate, although marginally above the reading of 0.1% of the previous month.
In annual terms, the underlying IPC remained stable at 2.8%, in line with the forecasts.
The softest inflation data has increased the probability of a relief from the Fed policy later this year, with the markets now assigning a greater probability that the first rate cut occurs in September, according to CME Fedwatch. However, the CPI is just a piece of the puzzle. The broader macroeconomic narrative now focuses on FED communications, labor market data and global trade risks, which will further clarify the policy path of the Central Bank.
The comments of the Fed and the uncertainty of the Boc add layers to the dynamics of the USD/Cad
The operators will be closely observing the comments of Fed Christopher Waller, Philip Jefferson and Mary C. Daly on Wednesday, followed by a critical speech by President Jerome Powell on Thursday.
These comments will offer new perspectives on whether the Fed considers that the recent disinflation trend is sufficient to justify feat cuts or if a more cautious approach will prevail.
Meanwhile, the Bank of Canada faces its own internal challenges. With inflation in downward trend and economic growth losing impulse, almost 60% of analysts now anticipate a Boc rates cut at their next meeting.
The expansion of the policy gap between the FED and the BOC is emerging as a central theme for the USD/CAD operators, and could amplify the directional movements in the coming weeks.
Oil prices, another crucial variable for the Canadian dollar, are still volatile amid concerns about global demand and geopolitical interruptions. As an important exporter, Canada’s economic perspective and its currency are highly sensitive to raw oscillations, which converts energy market trends into another key component of USD/CAD volatility.
The USD/CAD Fight in key resistance while technical indicators indicate a pivotal turning point
The USD/CAD torque tried to move beyond the key psychological threshold of 1.4000, but could not keep the impulse above the simple mobile average (SMA) of 200 days, which is currently 1,4020. This inability to break up is underlines the long upper shadow in Tuesday’s candle, reflecting a pronounced rejection by sellers at high levels.
Consequently, the PAR has retreated below 1.4000, reaffirming the 200 -day SMA as a significant resistance barrier. At the same time, the 61.8%fibonacci recoil level, measured from the minimum of September 2024 to February 2025, is offering immediate support about 1,3940. The confluence of resistance and support within the range of 1,3940 to 1,4000 is forming a technical area of ​​critical inflection.
USD/CAD DAILY GRAPH
The Relative Force Index (RSI), currently in 54.00, indicates a moderate bullish impulse without indicating overcompra conditions, which implies that the directional inclination can depend on the next fundamental or technical catalysts. If the torque breaks decisively below 1,3940, could invite greater sale pressure, potentially triggering a movement towards the minimum of November 2024 in 1,3823 and extending even more towards the level of fibonacci recoil of 78.6% in 1,3714.
On the contrary, a firm daily closure above the 200 -day SMA would probably change the feeling in favor of the bulls, opening the path to the 50% decline level in 1,4106, with a possible continuation towards the maximum of April around 1,4415.
Canadian dollar faqs
The key factors that determine the contribution of the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BOC), the price of oil, the main export product of Canada, the health of its economy, inflation and commercial balance, which is the difference between the value of Canadian exports and that of its imports. Other factors are market confidence, that is, if investors bet on riskier assets (Risk-on) or seek safe assets (Risk-Off), being the positive risk-on CAD. As its largest commercial partner, the health of the US economy is also a key factor that influences the Canadian dollar.
The Canada Bank (BOC) exerts a significant influence on the Canadian dollar by setting the level of interest rates that banks can provide with each other. This influences the level of interest rates for everyone. The main objective of the BOC is to maintain inflation between 1% and 3% by adjusting interest rates to the loss. Relatively high interest rates are usually positive for CAD. The Bank of Canada can also use quantitative relaxation and hardening to influence credit conditions, being the first refusal for CAD and the second positive for CAD.
The price of oil is a key factor that influences the value of the Canadian dollar. Oil is the largest export in Canada, so the price of oil tends to have an immediate impact on the value of the CAD. Generally, if the price of oil rises, the CAD also rises, since the aggregate demand of the currency increases. The opposite occurs if the price of oil drops. The highest prices of oil also tend to give rise to a greater probability of a positive commercial balance, which also supports the CAD.
Although traditionally it has always been considered that inflation is a negative factor for a currency, since it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross -border capital controls. Higher inflation usually leads to central banks to raise interest rates, which attracts more capital of world investors who are looking for a lucrative place to save their money. This increases the demand for the local currency, which in the case of Canada is the Canadian dollar.
The published macroeconomic data measure the health of the economy and can have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can influence the CAD direction. A strong economy is good for the Canadian dollar. Not only attracts more foreign investment, but it can encourage the Bank of Canada to raise interest rates, which translates into a stronger currency. However, if the economic data is weak, the CAD is likely to fall.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
