USD/CAD Outlook: Canadian CPI Data in Focus

USD/CAD Outlook: Canadian CPI Data in Focus | Errante

18/03/2025

Market Overview

The USD/CAD price is treading around the 1.4300 level ahead of much anticipated Canadian inflation data for Feb. The figures are expected to tick up modestly from 1.9% to 2.1% y/y. While it’s not alarming, the rise in inflation can influence sentiment and the outlook of BoC’s monetary policy. Meanwhile, softer crude oil prices and the dollar’s potential recovery add to the complex dynamics.

Fundamental Analysis

Canada’s inflation data is set to be released in an early New York session today, with marker participants closely watching for any surprise that could impact the Bank of Canada’s future policy decisions. The central bank recently reduced its policy rate by 25 bps to 2.75%, marking a seventh consecutive rate cut amid economic slowdown concerns and uncertainties stemming from US-Canada trade tensions.

The recently imposed 25% tariffs on Canadian steel and aluminum exports to the US add more complications. Though the tariffs pose an inflationary risk, forcing BoC to pause the rate cut cycle, Governor Macklem said that inflation could be volatile. Still, the medium-term outlook should remain under 2%.

The BoC could shift its stance towards a hawkish tone if the CPI print is higher than expected. Contrarily, if the CPI remains downbeat, the central bank will continue with its rate-cut policy. Moreover, crude oil prices remain slightly elevated from the recent lows, providing support to the loonie.

Technical Analysis

Technically, the USD/CAD price consolidates around 1.4300 after hitting a bottom of around 1.4275. However, the broad trend remains uncertain as traders await confirmation from the key support and resistance levels. A solid support emerges at 1.4240 ahead of 1.4160, while the immediate resistance lies at 1.4380 ahead of 1.4542.

The daily chart shows a strong downtrend bias as the price has moved below the 20-day SMA and consolidated the losses. The upside seems limited, with the path of least resistance lying on the downside.