Summary of Canadian Dollar Forecast: USD/CAD Strengthens After Canada’s CPI Release
In recent trading sessions, the USD/CAD currency pair has demonstrated a bullish trend, marking five consecutive days of gains, with an increase of over 1%. This upward movement is primarily attributed to the strengthening of the U.S. dollar, particularly following the release of Canada’s Consumer Price Index (CPI) data.
Inflation Data Insights
Canada's year-over-year CPI data was released, showing an actual inflation rate of 2.3%, slightly below the expected 2.4%. This indicates a stabilization in inflation, moving closer to the Bank of Canada's target of 2.00%. The moderation in inflation suggests that there is less risk of inflation spiraling out of control in the near term.
Key Takeaways:
- The Bank of Canada has maintained a cautious "wait-and-see" approach regarding monetary policy.
- The recent CPI data may support the current policy rate of 2.25%, which is significantly lower than the U.S. rate of 3.75%.
- The interest rate differential between Canada and the U.S. continues to favor U.S. dollar-denominated assets.
U.S. Dollar Performance
In addition to Canadian factors, the performance of the U.S. dollar has also been notable. The DXY index, which measures the dollar's strength against major currencies, has rebounded above the 97-point mark, indicating renewed demand for the U.S. dollar. If this trend continues, it could further weaken the Canadian dollar and support additional buying pressure in the USD/CAD pair.
Technical Outlook for USD/CAD
Despite the recent recovery in the USD/CAD pair, the broader downtrend remains intact. The pair has been oscillating in a bearish pattern since late November 2025, forming a descending trendline. Current technical indicators suggest a phase of consolidation, with the Relative Strength Index (RSI) approaching neutral levels and the MACD indicating indecision in momentum.
Key Levels to Watch:
- 1.39966: Key resistance level that could challenge the bearish structure if surpassed.
- 1.35957: Current barrier indicating a neutrality zone; failure to break this could lead to sideways consolidation.
- 1.35019: Key support level; a break below this could reinforce the bearish trend.
Overall, the combination of stable inflation data and the performance of the U.S. dollar suggests that the USD/CAD pair may continue to experience buying pressure in the short term, while the Canadian dollar's attractiveness could be limited.