Canadian Dollar slides with Oil prices, US CPI fails to keep US Dollar higher

• USD/CAD rises toward 1.3870 after reaching 1.3882 in the immediate reaction to the US inflation report.
• US annual inflation remains unchanged at 3.4% in August, while monthly core inflation comes in above expectations.
• The Canadian Dollar underperforms as US Oil plunges more than 4% and falls back below $100.

USD/CAD rises 0.27% on Friday and trades around 1.3870 at the time of writing, after reaching a daily high of 1.3882 in the immediate reaction to the release of United States (US) inflation data. The pair is on track for a third consecutive day of gains, supported by the US Dollar's (USD) initial reaction to the data and a sharp decline in Oil prices that weighs on the Canadian Dollar (CAD).

The US Consumer Price Index (CPI) rises 3.4% YoY in August, unchanged from the previous month and in line with market expectations, according to data released by the Bureau of Labor Statistics (BLS) on Friday. On a monthly basis, prices increase 0.4%, following a rise of just 0.1% previously.

The underlying figures provide a slightly firmer signal. The Core CPI, which excludes volatile food and energy components, rises 0.3% MoM, exceeding the 0.2% forecast. On an annual basis, however, core inflation eases to 2.4% from 2.5% in July.

The US Dollar briefly strengthened following the release as investors reacted to the stronger-than-expected monthly increase in core inflation. However, the Greenback struggles to retain its gains as the annual figures show no renewed acceleration in inflationary pressures.

On the Canadian side, selling pressure is more pronounced. The Canadian Dollar underperforms its major currency peers on Friday as Oil prices retreat sharply after recently reaching a fresh four-month high. West Texas Intermediate (WTI) US Oil falls 4.62% and trades around $95.90 at the time of press, after facing strong selling pressure above the $100 level.

Lower Oil prices represent a headwind for the Canadian currency due to the significant role of energy in Canada's exports. The Loonie's weakness, combined with the US Dollar's initially positive reaction to the inflation data, allows USD/CAD to extend its advance on Friday.

USD/CAD technical analysis

In the one-hour chart, USD/CAD trades at 1.3864, retaining a bullish near-term bias as it holds above the 100-period and 200-period simple moving averages (SMAs) at 1.3808 and 1.3827, as well as the rising trend-line support region around 1.3835. The Relative Strength Index (14) at 76.9 sits in overbought territory, suggesting strong upside momentum but also warning that the latest advance could be prone to a corrective pause if buyers fail to clear nearby resistance.

On the topside, initial resistance is aligned at 1.3872, with a subsequent hurdle at 1.3890, where a break would reinforce the bullish structure and open further gains. On the downside, immediate support is seen at the trend-line area near 1.3835, followed by the 200-period SMA at 1.3827 and the 100-period SMA at 1.3808; a deeper pullback toward the horizontal floor at 1.3760 would likely signal that bulls are losing short-term control.

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