Canadian Dollar falls despite increased Oil prices

• USD/CAD rises amid hot US CPI and PPI data.
• Persistent inflation pressure reinforces expectations that the Federal Reserve may keep interest rates higher for longer.
• Ongoing Iran-related geopolitical tensions and mixed Canadian housing and manufacturing data keep the Canadian Dollar under pressure.

The USD/CAD pair elevated near the 1.3760 level on Friday and remains supported by persistent inflation concerns and rising US Treasury yields following this week’s hotter-than-expected US inflation data.

The latest US Consumer Price Index (CPI) report showed headline inflation accelerating to 3.8% YoY in April, while Producer Price Index (PPI) data released later in the week surged 1.4% MoM, marking the strongest monthly increase in four years. This data reinforced expectations that the Federal Reserve (Fed) may keep interest rates elevated for longer as inflationary pressures continue to broaden across the economy.

Additional support for the Greenback comes from ongoing geopolitical uncertainty in the Middle East. Markets remain cautious as negotiations involving Iran continue to show little meaningful progress, keeping fears alive that disruptions around the Strait of Hormuz could persist. Meanwhile, elevated Oil prices continue limiting broader downside pressure on the commodity-linked Canadian Dollar (CAD).

On the Canadian side, traders assessed fresh domestic economic data published on Friday. Canadian housing-related indicators rose to 279.3K, higher than the 240K expected, while Manufacturing Sata released at 3% MoM, lower than the 3.5% expected, highlighting mixed momentum across the industrial sector despite some improvement in factory activity earlier in the quarter.

Short-term technical analysis:

On the 4-hour chart, USD/CAD trades at 1.3756, keeping a bullish near-term bias as it holds above the 20-period Simple Moving Average (SMA) at 1.3717 and the 100-period SMA at 1.3659. The pair is testing a nearby horizontal pivot at 1.3756 while the Relative Strength Index (RSI) hovers in overbought territory near 78, hinting that upside momentum remains strong but could be prone to consolidation due to the overbought nature of the RSI.

On the topside, immediate resistance is located at the horizontal barrier around 1.3767, and a sustained break higher would open the way for further gains. On the downside, initial support is seen at 1.3751, followed by 1.3735, with the 20-period SMA at 1.3717 and the 100-period SMA at 1.3659 providing deeper structural demand on pullbacks.

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