USD/CAD Outlook: Canadian Dollar Eyes 1.9% Inflation Spike Amid Fed Rate Cut Speculations

The USD/CAD is trading at $1.40166, down 0.02%, as bearish momentum dominates ahead of Canada’s key inflation report.

Today’s CPI data, expected to rise from 1.6% to 1.9%, could shape market expectations for the Bank of Canada’s (BoC) monetary policy. Core inflation, projected at 2.4%, remains within the BoC’s target range of 1-3%.

A weaker Canadian dollar has been driven by stronger U.S. dollar demand, buoyed by geopolitical tensions and adjusted expectations for Federal Reserve rate cuts. Futures markets now price in a 58.7% likelihood of a December Fed rate cut, down from earlier predictions of 77 basis points of easing through 2025.

Geopolitical Risks Support U.S. Dollar Strength

Geopolitical tensions continue to bolster demand for safe-haven currencies like the U.S. dollar. Reports suggest the Biden administration has authorized Ukraine to use U.S.-supplied weaponry for operations inside Russia.

This marks a significant policy shift and has heightened market concerns over prolonged geopolitical instability.

For USD/CAD, any further escalation in geopolitical risks could strengthen the U.S. dollar against the Canadian dollar, particularly as market participants weigh the impact on global energy prices and trade dynamics.

USD/CAD Technical Analysis

USD/CAD is consolidating below the pivot point at $1.40263, reflecting bearish momentum on the 4-hour chart. Immediate resistance is seen at $1.40489, with further levels at $1.40711 and $1.41016 acting as potential hurdles for a rebound.

On the downside, immediate support lies at $1.39888, followed by $1.39599 and $1.39303.

The RSI is at 39, signaling bearish momentum but nearing oversold territory, which could trigger a short-term consolidation or bounce. Meanwhile, the 50-day EMA at $1.40329 reinforces near-term resistance, keeping the selling bias intact.

A confirmed break below $1.39888 could push USD/CAD to $1.39599, while a move above $1.40263 may shift the focus to resistance at $1.40489.

For traders, short positions below $1.40260 align with the bearish trend. A take-profit at $1.39882 offers a reasonable target, while a stop-loss at $1.40490 helps manage risk.