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- USD/CAD holds steady around 1.4120 in Tuesday’s early European session.
- The US October CPI inflation report will be the highlight on Tuesday.
- Canada’s Unemployment Rate reached a six-month high in October.
The USD/CAD pair trades on a flat note near 1.4120 during the early European trading hours on Tuesday. Traders might prefer to wait on the sidelines ahead of the key US inflation data, which is due later in the day.
Stronger-than-expected US Nonfarm Payrolls (NFP) data released last week have reinforced expectations that the US Federal Reserve (Fed) could keep interest rates higher for longer, supporting the US Dollar (USD) against the Canadian Dollar (CAD). According to the CME FedWatch tool, markets are now pricing in nearly a 84.0% odds that the Fed will raise rates in December.
Traders await the US Consumer Price Index (CPI) inflation report later on Tuesday for fresh impetus. Economists expect the headline CPI to show a rise of 0.3% MoM in October, while the core CPI is projected to show an increase of 0.2%.
The report will not include an annual reading for October CPI because of the government shutdown a year ago, which prevented the BLS from collecting some data and compiling a full index level.
On the Loonie front, Canada’s Unemployment Rate climbed to a six-month high of 6.7% in October with the economy shedding a net total of 4,700 jobs, Statistics Canada revealed last week. Money markets updated their bets on a Bank of Canada (BoC) rate hikes and are now pricing in another 25-basis-point increase in rates only in March, according to Reuters.
Loonie grinds higher but Scotiabank flags fragile fundamentals
Analysts at Scotiabank note that while the Canadian Dollar has advanced, “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.” 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,” underscoring the extent of the recent rebound. However, the bank strikes a more guarded tone on the sustainability of the move, 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 flags inflation risks but urges careful Fed path as economy stays resilient
Barkin’s latest remarks score 6.2 on the FXS Speechtracker, only marginally above the 6.1 historical average, underscoring a tone that is slightly more hawkish but broadly consistent with the established baseline. Emphasizing that “risk lies on the inflation side” while calling the policy path “straightforward” yet to be pursued “with care,” Barkin highlights resilient demand, broad-based cost pressures, and firms’ intent to pass on higher costs even as consumer sentiment remains “bleak” but spending persists. The combination of “remarkably stable” economic conditions, healthy loan pipelines, muted layoffs, and strong earnings reinforces a narrative of underlying strength that keeps the Fed biased toward guarding against renewed price pressures.
The FXS Fed Sentiment Index slipped by 0.66 points to 142.34, signaling a modest pullback in perceived hawkishness even as the gauge remains firmly above the neutral 100 mark. This configuration suggests that, while the immediate tone is slightly less hawkish at the margin, the overall policy backdrop still leans clearly toward vigilance on inflation risks rather than an imminent pivot toward easier Dollar policy.
Technical Analysis: USD/CAD keeps a bullish tone above the 100-day SMA
In the daily chart, USD/CAD holds a mild bullish bias as it consolidates above the 100-day Moving Average (MA) and the Bollinger Bands 20-day simple moving average. This positioning suggests underlying dip-buying interest, while the Relative Strength Index (14) around 56 points to moderate, rather than overextended, upside momentum after earlier overbought readings have eased.
On the downside, initial support is seen in the 1.4060–1.4045 area, where the Bollinger mid-line and the 100-day MA cluster, with a deeper cushion near the lower Bollinger Band around 1.3910 if selling accelerates. On the topside, immediate resistance emerges at the upper Bollinger Band near 1.4205, and a sustained break above this ceiling would open the door for a continuation of the broader upmove in the pair.
