USD/CAD pulls back to 1.3535 and consolidates below 20-day SMA

• The USD/CAD has four days of losses and is trading at 1.3545.
• Rising energy prices contributed to an acceleration in the US CPI in August.
• Fed tightening expectations remain.
• Rising oil prices favor the CAD.

USD/CAD continued its bearish path on Wednesday, accumulating a drop of more than 1% in the last four days, and traded in the range 1.3585 – 1.3520. On the dollar side, the USD remains firm after the publication of inflation figures, as investors continue to bet on a final increase by the Federal Reserve (Fed) in 2023. On the other hand, the CAD is trading with strength, driven mainly by the rise in oil prices, which on Tuesday reached their highest levels since November.

In terms of data, the overall US Consumer Price Index (CPI) rose to 3.7%, above the previous 3.2% and the expected figure of 3.6%, and the US Bureau of Labor Statistics. USA (BLS) reported that a rise in energy prices fueled the rise. On a positive note, the underlying index fell to 4.3% from 4.7% previously, in line with expectations.

All eyes are now focused on Thursday’s US Producer Price Index (PPI) numbers, which are expected to accelerate to 1.2% year-on-year from 0.8% previously. Retail sales for the same month will also be closely watched. At the moment, CME’s FedWatch tool indicates that the case for a final 25 basis point hike by the Federal Reserve (Fed) remains strong, with investors discounting almost a 40% chance. In line with this, hawkish bets could cushion USD losses.

USD/CAD levels to watch

Analyzing the daily chart, the technical outlook for USD/CAD remains neutral to bearish as the bears continue to show signs of gaining ground. Sloping negatively below its midline, the Relative Strength Index (RSI) signals bearish sentiment, while the Moving Average Convergence Histogram (MACD) shows rising red bars.

Support levels: 1.3520, 1.3500, 1.3490.

Resistance levels: 1.3576 (20-day SMA), 1.3600, 1.3630.

USD/CAD Daily Chart