Canadian Dollar holds steady as traders await US CPI release

1.4120 anchors USD/CAD as the pair trades little changed early in Tuesday’s European session.
Tuesday’s main focus is the US CPI inflation release for October.
October saw Canada’s unemployment rate climb to its highest in six months.

1.4120 remains the trading level for a largely unchanged USD/CAD early in Tuesday’s European session. With key US inflation figures scheduled for later in the day, traders may opt to stay on the sidelines.

Expectations that the US Federal Reserve (Fed) could maintain higher interest rates for longer strengthened after last week’s better-than-forecast US Nonfarm Payrolls (NFP) release. That outlook is supporting the US Dollar (USD) against the Canadian Dollar (CAD). Markets now assign a probability of nearly 84.0% to a December Fed rate increase, according to the CME FedWatch tool.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Fresh direction could come from the US Consumer Price Index (CPI) inflation release later on Tuesday. For October, economists forecast a 0.3% MoM increase in headline CPI, alongside a projected 0.2% rise in core CPI.

An annual October CPI reading will be absent from the release. The government shutdown a year earlier prevented the BLS from gathering some of the data needed to compile a complete index level.

For the Loonie, last week’s Statistics Canada figures showed an October unemployment rate of 6.7%, the highest in six months, as the economy lost a net 4,700 jobs. According to Reuters, money markets have revised their Bank of Canada (BoC) rate-hike expectations and now price in another 25-basis-point increase only in March.

Canadian Dollar edges up; Scotiabank questions fundamental support

Despite the Canadian Dollar’s gains, Scotiabank analysts observe that “the Loonie’s relative performance is somewhat more underwhelming when compared to its peers, and highlights its role as a lower-beta risk and commodity currency.” Highlighting the scale of the recovery, they add that “the CAD’s strength is notable nonetheless, and threatening to deliver fresh local highs as it retraces its selloff from early September,” but remain guarded about whether the advance can last. The bank states that “we are somewhat cautious however, given the renewed CAD-negative widening in US-Canada yield spreads, and note that recent CAD strength has not been confirmed by fundamentals.”

6.2 Speechtracker score: Barkin stresses inflation risk and policy caution

At 6.2, the FXS Speechtracker score for Barkin’s latest comments sits just above his historical average of 6.1. His tone is therefore slightly more hawkish, but remains broadly in line with the established baseline. Barkin says “risk lies on the inflation side” and describes the policy route as “straightforward”, although it must be followed “with care,” citing resilient demand, widespread cost pressures and companies’ plans to pass on higher costs. Consumer sentiment remains “bleak”, yet spending continues. Alongside “remarkably stable” economic conditions, healthy loan pipelines, limited layoffs and strong earnings point to underlying resilience, leaving the Fed inclined to guard against a resurgence in price pressures.

A 0.66-point decline took the FXS Fed Sentiment Index to 142.34. Perceived hawkishness has eased modestly, although the reading remains well above the neutral 100 level. This suggests a slightly less hawkish near-term tone, while the broader policy setting still favours vigilance over inflation risks rather than an imminent shift towards easier Dollar policy.

100-day SMA supports USD/CAD’s bullish bias: Technical Analysis

Consolidation above the 100-day Moving Average (MA) and the Bollinger Bands’ 20-day simple moving average leaves USD/CAD with a modest bullish bias on the daily chart. The position points to underlying buying interest on dips. Meanwhile, the Relative Strength Index (14), at around 56, signals moderate upside momentum rather than overstretched conditions, following an easing of earlier overbought readings.

The Bollinger mid-line and 100-day MA converge in the 1.4060–1.4045 zone, providing initial downside support. Should selling gather pace, the lower Bollinger Band around 1.3910 offers a further cushion. On the upside, the upper Bollinger Band near 1.4205 forms immediate resistance. A sustained move through that barrier would leave scope for the pair’s broader advance to continue.

(The technical analysis of this story was written with the help of an AI tool. Learn more.)

Canadian Dollar: Key Questions

Canadian Dollar: Main market drivers

Bank of Canada (BoC) interest rates, Oil prices, economic health, inflation and the Trade Balance are central drivers of the Canadian Dollar (CAD). Oil is Canada’s largest export, while the Trade Balance measures the difference between the value of the country’s exports and imports. Investor sentiment also matters: appetite for riskier assets, or risk-on conditions, supports the CAD, whereas risk-off conditions involve a move towards safe havens. With the US serving as Canada’s largest trading partner, the strength of the US economy is another important influence on the currency.

Bank of Canada policy: Effects on the Canadian Dollar

By setting the interest rate at which banks can lend to each other, the Bank of Canada (BoC) shapes borrowing rates across the economy and exerts considerable influence on the Canadian Dollar. Keeping inflation at 1-3% is its primary objective, pursued through increases or reductions in interest rates. Relatively high rates generally support the CAD. The BoC can also alter credit conditions through quantitative easing, which is negative for the CAD, or quantitative tightening, which is positive for the currency.

Oil prices: A key Canadian Dollar influence

As petroleum is Canada’s largest export, changes in Oil prices tend to feed directly into the Canadian Dollar’s value. Rising Oil prices generally lift aggregate demand for the currency and, in turn, the CAD. Falling Oil prices usually have the reverse effect. Higher Oil prices also improve the likelihood of a positive Trade Balance, providing further support for the Canadian Dollar.

Inflation: Implications for the Canadian Dollar

Traditionally, inflation was considered harmful to a currency because it erodes the value of money. In modern times, however, looser cross-border capital controls have produced the opposite effect. Higher inflation tends to prompt central banks to raise interest rates, drawing capital from international investors seeking attractive returns. The resulting inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

Economic data: Signals for the Canadian Dollar

Releases of macroeconomic data measure economic health and can move the Canadian Dollar. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that influence the CAD’s direction. Economic strength supports the currency by attracting foreign investment and potentially encouraging the Bank of Canada to raise interest rates. Weak data, by contrast, are likely to weigh on the CAD.