The USD/CAD currency pair trades firmly near 1.3850 as market participants await the release of the US Producer Price Index (PPI) data for August. The pair has maintained gains during the late Asian trading session on Wednesday, holding close to Tuesday’s high around 1.3850.
This movement comes amid the Canadian Dollar’s (CAD) underperformance versus its peers, reflecting investor expectations that the Bank of Canada (BoC) may soon resume its monetary easing cycle, which had been paused in April. Readers will find a complete breakdown of this issue from Solancie brokers in their article.
BoC Rate Cut Expectations Weigh on CAD
The Loonie continues to face pressure as traders anticipate a 25-basis-point (bps) rate cut by the BoC, which would reduce the policy rate to 2.5% in the upcoming meeting next week. Analysts at Bank of America (BofA) have highlighted that deteriorating Canadian labor market conditions, coupled with inflation remaining within the BoC’s 2% target, are the primary drivers of this expected dovish shift.
BofA further projects that the BoC may cut rates even further, potentially reaching 2% by the end of 2026. The combination of a rising jobless rate and moderate inflation strengthens the case for continued monetary policy easing, placing additional pressure on the CAD.
As a result, the USD/CAD pair has found support near current levels, with the market pricing in BoC dovishness, which typically favors the US Dollar (USD) against the Canadian Dollar.
USD Holds Ground Ahead of US PPI Data
The US Dollar has maintained a recovery move after Tuesday’s gains, with traders turning their attention to the US PPI report for August, scheduled for release at 12:30 GMT.
Analysts expect the headline PPI to have increased at an annualized rate of 3.3%, signaling steady inflationary pressures. Meanwhile, the core PPI, which strips out volatile food and energy prices, is projected to have risen by 3.5%, slightly lower than July’s 3.7%.
A stronger-than-expected PPI reading could bolster the USD, providing the pair with potential upside momentum, while a weaker print might exacerbate volatility near key technical levels.
200-Day EMA Remains a Critical Resistance
From a technical analysis perspective, USD/CAD continues to trade below the 200-day Exponential Moving Average (EMA), which currently sits around 1.3870. This level acts as a significant resistance for USD bulls, suggesting that the overall trend remains bearish despite short-term gains.
The pair’s 14-day Relative Strength Index (RSI) is oscillating between 40.00 and 60.00, indicating a sideways trend and highlighting the lack of strong directional momentum at present. Traders will closely monitor a breach of the 200-EMA, as a decisive move above this level could signal a potential trend reversal in favor of the USD.
Key Support Levels to Watch
On the downside, USD/CAD may test several critical support levels if selling pressure intensifies. A break below the August 7 low of 1.3722 could open the door for the pair to slide toward the round level of 1.3600, with further downside targeting the June 16 low of 1.3540.
These levels represent key technical support zones, where buyers may step in to prevent further depreciation. Market participants should pay attention to these levels, as a breach could indicate increased bearish momentum in the near term.
Upside Potential and Resistance Targets
Conversely, a sustained recovery move above the August 22 high of 1.3925 would shift market focus toward higher resistance zones. The next upside target would be the May 15 high of 1.4000, followed by the April 9 high of 1.4075.
A breakthrough above these technical resistance levels could attract buying interest from traders seeking to capitalize on a potential USD rally. However, the 200-EMA remains a critical barrier, and a failure to surpass this level may limit upside momentum.
Outlook
Overall, USD/CAD remains under technical and fundamental pressure, with the 200-day EMA acting as a decisive resistance level. Traders should monitor the BoC policy decision and the US PPI release, as these macroeconomic events will likely determine the pair’s short-term direction.
The Loonie’s underperformance against the USD reflects growing market expectations of monetary easing, while technical indicators suggest the pair may continue to trade sideways unless a major catalyst shifts momentum. A break above 1.3870 could signal the next leg higher, whereas a drop below 1.3722 may confirm the bearish bias for the coming weeks.
In conclusion, the 200-day EMA remains a key barrier for US Dollar bulls, and traders should carefully watch both technical levels and fundamental data to gauge the next move in the USD/CAD currency pair.
