Canadian Dollar steadies as US inflation meets expectations, Oil limits downside

• USD/CAD trades little changed around 1.3915 on Wednesday, down a modest 0.06% on the day.
• US inflation eases to 3.4% in July, in line with expectations, triggering a limited reaction in the US Dollar.
• Uncertainty surrounding the ceasefire between Washington and Tehran limits pressure on the Canadian Dollar.

USD/CAD trades around 1.3915 on Wednesday at the time of writing, virtually unchanged on the day with a modest decline of 0.06%. The pair lacks a clear direction following the release of US inflation data that matched expectations, while renewed tensions surrounding the peace process between the United States (US) and Iran maintain uncertainty in the Oil market.

In the United States, inflation, as measured by the Consumer Price Index (CPI), eased to 3.4% YoY in July from 3.5% in June, according to the Bureau of Labor Statistics (BLS). On a monthly basis, prices rose by 0.1%, following a 0.4% decline in June. The core CPI, which excludes volatile food and energy components, increases by 0.2% MoM and 2.5% YoY. All these figures match market expectations.

The reaction of the US Dollar (USD) remains limited, as the figures provide no surprise significant enough to materially alter expectations regarding the Federal Reserve’s (Fed) monetary policy outlook. The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, edges slightly lower following the release.

On the Canadian side, Oil remains a key driver for the Canadian Dollar (CAD), as Canada is a major crude exporter. West Texas Intermediate (WTI) Oil declines on Wednesday after two consecutive days of gains, although geopolitical uncertainty in the Middle East could limit the downside in energy prices.

Concerns increase after Reuters reported, citing a senior Iranian source, that no discussions are currently underway regarding an extension of the ceasefire between Washington and Tehran. According to the source, Tehran considers that there is no official start date for the ceasefire and therefore nothing to extend.

The report dampens hopes for a swift de-escalation, while attacks on vessels attempting to cross the Straits of Hormuz and Bab el-Mandeb also fuel concerns. US President Donald Trump adds to the pressure by calling on Tehran to pay reparations to victims of attacks linked to the Islamic Republic.

These developments reduce hopes for a swift reopening of the Strait of Hormuz and maintain a risk premium in the Oil market. This backdrop could provide some support to the Canadian Dollar and help contain USD/CAD, while US inflation data matching expectations offer little fresh catalyst for the US Dollar.

USD/CAD technical analysis

In the four-hour chart, USD/CAD trades at 1.3915, keeping a bearish near-term bias as it holds below the 100-period simple moving average (SMA) at 1.4039 and the 200-period SMA at 1.4093. The pair also trades under the horizontal barrier at 1.4000 and the descending trend-line resistance coming in around 1.4042, suggesting rallies remain capped for now. The Relative Strength Index (RSI) hovers near 34, hinting at lingering downside pressure while stopping short of outright oversold conditions.

On the downside, immediate support is seen at the horizontal level around 1.3900, ahead of a lower floor near 1.3870, where sellers could hesitate to extend the decline. On the topside, initial resistance is located at 1.4000, followed by the 100-period SMA at 1.4039 and the broken trend-line area near 1.4042, with the 200-period SMA at 1.4093 acting as a more distant cap that would need to be reclaimed to ease the current bearish tone.

(The technical analysis of this story was written with the help of an AI tool. Know more.)