Canadian Dollar holds steady as traders await US CPI release

• At around 1.4120, USD/CAD is little changed in early European trading on Tuesday.
• October’s US CPI inflation figures take centre stage on Tuesday.
• October saw Canada’s unemployment rate rise to its highest level in six months.

With key US inflation figures due later on Tuesday, traders may opt to remain on the sidelines. USD/CAD is trading near 1.4120, largely unchanged in the early part of the European session.

Last week’s stronger-than-forecast US Nonfarm Payrolls (NFP) figures bolstered expectations that interest rates could remain elevated for longer under the US Federal Reserve (Fed). That outlook has lent support to the US Dollar (USD) against the Canadian Dollar (CAD). Markets now assign a probability of nearly 84.0% to a December rate increase by the Fed, according to the CME FedWatch tool.

An October rise of 0.3% MoM in headline US Consumer Price Index (CPI) inflation is expected by economists, with core CPI forecast to increase by 0.2%. Traders are looking to Tuesday’s release for a fresh catalyst.

No annual October CPI figure will be published in the report. The government shutdown a year earlier prevented the BLS from gathering some of the data needed to compile a complete index level.

In Canada, October’s unemployment rate rose to 6.7%, a six-month high, as the economy recorded a net loss of 4,700 jobs, figures released last week by Statistics Canada showed. According to Reuters, money markets have revised their expectations for Bank of Canada (BoC) rate rises and now price in a further 25-basis-point increase only in March.

Loonie edges up as 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 recent 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,” Yet Scotiabank is more circumspect about whether the advance can last, stating 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.”

Barkin advocates a cautious Fed course as inflation risks persist

A score of 6.2 on the FXS Speechtracker puts Barkin’s latest comments just above his historical average of 6.1. The reading indicates a slightly more hawkish stance, though one largely in line with his established position. Barkin describes the policy course as “straightforward” but says it should be followed “with care,” stressing that “risk lies on the inflation side”. He points to resilient demand, widespread cost pressures and companies’ plans to pass on higher costs. Consumers continue to spend despite sentiment remaining “bleak”. Alongside “remarkably stable” economic conditions, healthy loan pipelines, limited layoffs and strong earnings support the picture of underlying resilience, keeping the Fed inclined to guard against a resurgence in price pressures.

A decline of 0.66 points left the FXS Fed Sentiment Index at 142.34, indicating a modest easing in perceived hawkishness. Nevertheless, it remains well above the neutral level of 100. While the latest tone is marginally less hawkish, the broader policy setting therefore continues to point towards vigilance over inflation risks rather than an imminent shift to easier Dollar policy.

Technical Analysis: USD/CAD retains bullish bias above 100-day SMA

Consolidation above both 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 pattern points to underlying demand on dips. Meanwhile, the Relative Strength Index (14), at around 56, suggests moderate upward momentum rather than overstretched conditions, following an easing of earlier overbought readings.

The 1.4060–1.4045 zone provides initial downside support, bringing together the Bollinger mid-line and the 100-day MA. Should selling gather pace, the lower Bollinger Band around 1.3910 offers a further cushion. Resistance immediately above lies near 1.4205 at the upper Bollinger Band; a sustained move through that barrier would pave the way for the pair’s broader advance to continue.

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