The USD/CAD currency pair is holding firm above the 1.3950 level during Tuesday’s European session, as traders gear up for the highly anticipated release of the US Consumer Price Index (CPI) report for April. Despite minor pullbacks, the pair is on track for its fifth consecutive daily gain, buoyed by trade optimism and expectations of rising US inflation.
This article by the brokers at Lesrouleaux offers a critical and detailed look into this area of interest.
CPI Report in Focus
The upcoming CPI release, scheduled for later in the North American session, is set to provide critical insights into the US inflation trajectory. Economists forecast a notable rebound in the headline CPI, expecting it to rise by 0.3% month-over-month (MoM) following the previous reading of -0.1%. The core CPI, which excludes volatile items such as food and energy, is also anticipated to increase by 0.3%, up from 0.1% in March.
While the year-over-year (YoY) inflation rates for both headline and core CPI are projected to remain unchanged, the month-on-month acceleration could rekindle speculation that the Federal Reserve might need to keep interest rates elevated for longer. A hotter-than-expected CPI print could therefore catalyze renewed US Dollar (USD) strength.
USD Softens Slightly, but Pair Remains Buoyant
Despite the overall bullish momentum, the USD has experienced modest softening ahead of the inflation data, likely driven by position squaring and profit-taking. Nevertheless, USD/CAD remains well-supported, hovering near the 1.3970 level, which acts as a psychological resistance zone.
Investors appear cautious, awaiting confirmation from the inflation numbers before making fresh directional bets. Should the CPI surprise to the upside, USD/CAD could break decisively above the 1.3970 barrier, opening the door toward the 1.4000 psychological handle and beyond.
US-China Trade Optimism Boosts Market Sentiment
Another key driver behind USD/CAD’s resilience is the recent progress in US-China trade negotiations. Over the weekend, officials from both countries met in Switzerland and reached a preliminary agreement aimed at significantly reducing tariffs on bilateral trade.
Under the tentative deal:
- The US will reduce tariffs on Chinese goods from 145% to 30%
- China will lower tariffs on US imports from 125% to 10%
This breakthrough marks a major step toward de-escalating global trade tensions, which have been a persistent drag on investor sentiment. The prospect of increased global trade flows and supply chain normalization has provided support to risk-sensitive assets, including the commodity-linked Canadian Dollar (CAD).
Crude Oil Rally Supports CAD
While USD strength has dominated in recent sessions, higher Crude Oil prices are offering a counterbalancing force that supports the CAD.
As the largest crude oil exporter to the US, Canada’s economic health—and by extension, the value of its currency—is closely tied to the performance of the Oil market.
West Texas Intermediate (WTI) Crude continues its upward trajectory, trading near $61.70 per barrel during the European session. The ongoing rally extends WTI’s winning streak to a fourth consecutive session, fueled by optimism surrounding the US-China tariff de-escalation and hopes for improved global demand.
Stronger Oil prices typically boost the Canadian Dollar, as they increase export revenues and support Canada’s trade balance. As a result, any significant further advance in Oil could cap USD/CAD gains or even trigger a pullback in the pair if inflation data fails to impress.
Technical Perspective
From a technical analysis standpoint, USD/CAD continues to exhibit bullish structure, with price action consistently forming higher highs and higher lows. The pair is currently challenging the 1.3970 resistance zone, and a decisive break above this level could clear the path to the 1.4000–1.4050 range.
Key support levels to watch include:
- 1.3910 – recent swing low
- 1.3865 – 20-period moving average on the 4H chart
Momentum indicators such as the Relative Strength Index (RSI) are hovering in neutral-to-bullish territory, suggesting further upside potential if fundamental catalysts align.
Outlook and Conclusion
In summary, USD/CAD is holding its ground above 1.3950, driven by:
- Expectations of a CPI rebound
- US-China trade optimism
- Elevated Oil prices
The pair’s immediate direction will likely hinge on the US inflation data. A strong CPI print could bolster the USD, paving the way for a test of 1.4000, while a weaker-than-expected reading could cause USD/CAD to retreat, particularly if Oil prices continue to climb.
Overall, the interplay between macroeconomic data, commodity markets, and geopolitical developments remains the key determinant of short-term USD/CAD price action. Traders should remain alert to volatility spikes around the CPI release, and consider both the headline and core figures when assessing directional bias.
