Canadian Dollar edges up against US Dollar ahead of US CPI data

• The Canadian Dollar ticks higher against the US Dollar in the countdown to the US CPI data.
• According to estimates, both US headline and core inflation figures to arrive higher than August’s readings.
• Higher oil prices continue to lend support to the Canadian Dollar.

The Canadian Dollar (CAD) trades slightly higher against the US Dollar (USD) on Wednesday ahead of the United States (US) Consumer Price Index (CPI) data at 12:30 GMT. In the Asian trade, the USD/CAD pair is marginally down to near 1.4200, as the US Dollar extends its decline.

As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% lower to near 102.11. The DXY has retreated from its yearly high of 102.61 posted on Monday.

The US CPI report will likely to show that the headline inflation rose to 3.6% Year-on-Year (YoY) from 3.4% in August. The core CPI – which excludes volatile food and energy items – is seen arriving at 2.5% YoY, higher than the previous reading of 2.4%. The inflation data is expected to have a significant impact on Federal Reserve’s (Fed) interest rate expectations.

Currently, the CME FedWatch tool shows traders are confident that the Fed will leave interest rates unchanged in the policy meeting later this month and will deliver a hike in December.

Strategists at Societe Generale highlight Wednesday’s US CPI release as the key near-term driver for Fed expectations, arguing that a move in core inflation to “2.5% (the market consensus)” would leave the policy outlook largely unchanged. In their view, such a print would imply “little chance of any shift in market expectations: no rate hike this month, but a very strong chance of one in December and another in Q1.”

On the Loonie front, rising oil prices due to continued conflicts between Saudi Arabia and Iran-backed Houthis would keep lending support to the currency. The appeal of the Canadian Dollar improves in a high-oil-price environment, given Canada is net exporter of oil. The WTI Oil price has increased little over $96.00 from its six-week low of $86.32 posted last week.

USD/CAD Technical Analysis

In the daily chart, USD/CAD trades at 1.4203. The pair holds a bullish near-term bias as it remains above the 20-period exponential moving average (EMA) at 1.4163, suggesting that recent upside momentum is still supported by trend-following flows. The Relative Strength Index (14) at 59.0 stays in positive territory but shy of overbought levels, hinting that buyers retain control while leaving room for further gains before conditions become stretched.

On the downside, immediate support is seen at the 20-day EMA at 1.4163, which guards the latest advance and would need to give way to signal a deeper corrective phase. While no clear resistance markers are provided by the current dataset, the prevailing structure suggests that only a decisive drop back below the EMA would weaken the bullish tone and expose USD/CAD to a broader consolidation or pullback phase.

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