Usdcad drops amid mixed Canadian inflation signals

USDCAD Analysis

Performance after Wednesday
Period	Pct	Chg	Momentum
Wednesday	-0.42%	-58.8 Pips
Week to-date	-0.72%	-101 Pips
May	0.52%	72 Pips

Upcoming key events (London Time)

Thu 07:30 PM CAD Bank of Canada’s Governor Tiff Macklem speech

What happened lately

In Canada, the core inflation rate observed a significant increase on a month-to-month basis, with the Bank of Canada’s CPI Core Inflation Rate moving up to 0.5% in April 2025, following a more modest rise of 0.1% in March. This suggests a pronounced acceleration in the inflation momentum. Over a 12-month period, Canada’s Core CPI also experienced a rise, increasing from 2.2% in March to 2.5% in April. This indicates persistent inflationary pressures within the core goods and services, excluding volatile items. On the other hand, the broader Consumer Price Index (CPI) inflation displays a contrasting trend, showing a decline over the same timeframe. The general inflation rate for the 12-month period decreased to 1.7% from 2.3% in March, while the CPI monthly change showed a deflation, decreasing to -0.1% in April from 0.3% in March. The diverging paths between core and overall inflation highlight the complexities in the Canadian inflation landscape, reflecting easing pressures in broader categories despite the sustained hike in core inflation figures.

The recent movements in Canada’s inflation indicators signal potentially mixed implications for the USDCAD currency pair. The increase in core inflation points towards robust underlying demand pressures, usually supportive of a stronger Canadian dollar as markets anticipate tighter monetary policy by the Bank of Canada. However, the decline in the overall CPI and the deflationary trend in April might lead to caution among investors concerning the strength of economic growth and could thwart aggressive rate hikes. The USDCAD’s drop to 1.38560 is suggestive of a temporary adjustment, reacting, in part, to these mixed signals. As the Bank of Canada’s Governor Tiff Macklem is scheduled to speak, traders will closely monitor his speech for any hints regarding future monetary policy direction which could sway market sentiment. The current amalgamation of inflation data hints at volatility in the USDCAD movement as markets await further clarity from central bank communications and future macroeconomic indicators.

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What can we expect from USDCAD today?

USDCAD on Wednesday dropped -0.42% to 1.38560. Price is below 9-Day EMA while Stochastic is falling.

Updated daily direction for USDCAD looks bearish as the pair posted lower in Wednesday trading session.

Looking ahead for the day, immediate support level is at S1 1.38054 with break below could see further selling pressure towards S2 at 1.37548. To the upside, with the current momentum bearish, we prefer to look at breakout of the recent daily high of 1.39158 as a potential indicator of buying interest. Failure to break the resistance level would continue to echo bearish sentiment. A close below 1.38100 would indicate selling pressure.

For the week to-date, take note that USDCAD is bearish as the pair posted lower by -0.72%.

Key levels to watch out:

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