USDCAD Stuck Between BoC Patience and Fed Resilience

USDCAD trades around 1.3810–1.3820 ahead of July’s Canadian CPI release, with investors weighing the policy tug-of-war between the Bank of Canada (BoC) and the Federal Reserve. Consensus expects Canadian headline inflation to ease to 1.8%, but sticky core measures above 3% limit the BoC’s ability to accelerate rate cuts. Market-implied probabilities now lean 68% toward a hold in September, though minutes revealed growing internal divisions, with cut expectations rising to 33%.

Meanwhile, US inflation surprised to the upside after producer prices jumped, dampening bets on Fed easing and reinforcing dollar strength. This divergence has kept USDCAD testing higher ground, combined with weak Canadian labor data.

1. Canadian inflation & BoC policy tug-of-war

USDCAD hovers near 1.3810–1.3820, as markets await July’s Canadian CPI. Headline inflation is expected to cool slightly to 1.8%, but core measures remain stubbornly above 3%, constraining the Bank of Canada’s (BoC) appetite for aggressive rate cuts. The probability of a hold in September has risen to ~68%. BoC minutes reveal internal splits, with rate-cut expectations rising to 33%.

2. US inflation surprises leverage dollar strength

A sharp uptick in US producer prices dampened Fed cutting hopes, strengthening the USD and nudging USDCAD above faster than expected. Coupled with weak Canadian labor data, the pair continues to test higher levels.

3. Technical structure & key thresholds

Technically, USDCAD is holding above support near 1.3747–1.3750, with resistance at 1.3860, and more notably toward the 200-day moving average near 1.4035. Breaking above 1.3860 could open the path to 1.4000+, while slipping below 1.3750 may target 1.3600–1.3550.

Bottom Line

USDCAD is caught in a tight range, trapped between US inflation-driven dollar strength and BoC caution amid domestic price pressures. A sustained move above 1.3860 may signal further upside, but clear resistance at 1.4000 stands—key near-term catalysts: Canadian CPI, BoC commentary, and US inflation data.

USDCAD H3 Timeframe

On this USDCAD 3-hour chart:

We can see that the price had a sharp bullish run, but later retraced and formed a series of lower highs within a descending triangle. Eventually, buyers broke price out of that structure, pushing it higher.

Now, the pair is consolidating just above the 1.3800 handle, with strong support layers below:

• Rising trendline support (black diagonal line).
• 200 EMA (red line), acting as dynamic support.
• A demand box around 1.3725–1.3740.

This creates a bullish continuation setup.

Key Observations:

1. Breakout Retest Structure – The breakout from the descending wedge is above 1.3760, showing buyer strength.
2. Stacked Support Levels – Trendline + EMA + demand zone = strong confluence.
3. Upside Potential – The arrows highlight two bullish pathways:
   • A direct rally continuation from the current consolidation (~1.3800).
   • A dip into the demand box before bouncing higher.

Direction: Bullish

Target- 1.38504

Invalidation- 1.37093

CONCLUSION

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