The USD/CAD pair found support around the psychological 1.4000 level on Tuesday, temporarily halting its retracement from the highest levels seen since May 2020. However, traders remain cautious and are closely awaiting the release of Canadian consumer inflation data before making new directional moves.
The Canadian Consumer Price Index (CPI) for October is expected to rise by 0.3%, with the annual rate projected to increase from 1.6% in September to 1.9%. A softer-than-expected reading could strengthen market expectations for a significant interest rate cut by the Bank of Canada (BoC) in December, which may put further downward pressure on the Canadian Dollar (CAD) and allow USD/CAD to resume its recent uptrend.
Ahead of the data, easing supply tightness in crude oil prices has capped the overnight recovery from a two-month low, weakening the commodity-linked CAD. Additionally, expectations that US President-elect Donald Trump’s policies could spur inflation and reduce the likelihood of further Federal Reserve rate cuts have revived demand for the US Dollar (USD), providing further support to the USD/CAD pair.
Given the fundamental backdrop, the path of least resistance for USD/CAD appears to be upwards. Even if the Canadian CPI data surprises to the upside, any initial market reaction may be short-lived and could present a buying opportunity for USD bulls. However, bullish traders should await sustained strength above the 1.4100 level before positioning for further gains.
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