The USD/CAD currency pair experienced a decline for the second consecutive session amid ongoing US dollar weakening, driven by subdued US inflation data. Following the release of the July Consumer Price Index figures, traders’ expectations of aggressive Federal Reserve rate cuts increased. The core CPI, which excludes volatile food and energy prices, rose slightly above expectations, fueling speculation that the Fed may adopt a more dovish monetary policy stance. This shift in expectations has dampened USD strength and led to a technical slide from the 1.3800 resistance level.
Market sentiment has been further complicated by signs of a potential slowdown in the US economy, notably weaker labor market data, which underscore the case for rate reductions. Simultaneously, geopolitical factors, including the extension of trade truce talks between the US and China and diplomatic efforts involving Russia over Ukraine, have contributed to weaker safe-haven demand for the US dollar. These developments are supporting a broader risk-on environment, diminishing the appeal of the USD.
Conversely, commodity price dynamics and the domestic monetary policy outlook continue to influence the Canadian dollar. Recently, crude oil prices have declined, alongside cautious commentary from the Bank of Canada regarding future interest rate movements. Additionally, trade tensions have escalated as China announced a significant anti-dumping duty on Canadian canola imports, and the US has escalated tariffs on Canadian goods. These measures are expected to weigh on Canadian exports and, by extension, the economy, providing some support to the USD/CAD pair by preventing sharper declines.
Looking ahead, the market awaits no major economic releases from the US or Canada in the coming day, but speeches from Federal Reserve officials and shifts in risk sentiment could influence USD demand. Technical factors suggest near-term support levels could emerge around 1.3740, with further declines possibly targeting 1.3700 and below if recent lows are broken. Resistance levels are seen near 1.3780-1.3785, with a breakout above 1.3800 potentially opening room for a move toward 1.3900 and higher. Overall, traders remain cautious amid the complex sentiment environment, awaiting clearer directional cues.
