Canadian Dollar backslides as Greenback bounces ahead of critical CPI inflation

The Canadian Dollar eased back 0.2% on Monday against the US Dollar.
Markets are keeping one foot in the safe-haven Greenback ahead of key US CPI inflation.
A thin week on the Canadian side of the data docket leaves USD flows in the driver’s seat.

Joshua Gibson FXStreet

The Canadian Dollar (CAD) retreated on Monday, falling one-fifth of one percent against the US Dollar (USD) ahead of the latest US Consumer Price Index (CPI) inflation print on Tuesday. Markets are keeping one foot firmly planted in the safe-haven Greenback ahead of the key inflation reading, sucking the wind out of Loonie bulls’ collective sails in the process.

Core CPI inflation data from July is expected to tick higher this week, which could spell disaster for the market’s current trajectory on Federal Reserve (Fed) rate cut hopes. A dismal Nonfarm Payrolls (NFP) report at the start of the month sparked a one-sided plunge into bets of a September rate cut, and also triggered President Donald Trump to hastily fire the head of the US’s Bureau of Labor Statistics. The hunt is still on for a replacement data chief at the BLS, and markets are now pivoting to see if the latest round of inflation will be high enough to knock back rate cut expectations.

Daily digest market movers: Canadian Dollar eases back as US Dollar gains ground

Monday saw the Canadian Dollar fall back against the US Dollar, but still remains within familiar technical territory.
The Loonie’s near-term bullish momentum has faded away, giving the Greenback another leg up from key moving averages.
USD/CAD is rebounding into the 1.3800 region after a brief but one-sided backslide below 1.3740.
Headline US CPI inflation is expected to tick up to 2.8% YoY on Tuesday, with core CPI forecast to rise to 3.0% YoY.
With inflation pressures back on the upswing, it could be difficult for the Fed to justify a rate cut on September 17, even with fresh weakness in the US labor market.

Canadian Dollar price forecast

The Canadian Dollar’s weakness is the US Dollar’s gain, and Monday’s refreshed Greenback bids have bolstered the USD/CAD pair back toward 1.3800 after finding a technical floor at the 50-day Exponential Moving Average (EMA) near 1.3745. USD/CAD is still down nearly 0.7% from its recent high of 1.3880, and continued bullish momentum on the chart will see the US Dollar challenging the 200-day EMA near 1.3886.

USD/CAD daily chart

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

Author

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD moves sideways below 1.1800 on Christmas Eve

EUR/USD struggles to find direction and trades in a narrow channel below 1.1800 after posting gains for two consecutive days. Bond and stock markets in the US will open at the usual time and close early on Christmas Eve, allowing the trading action to remain subdued.

GBP/USD keeps range around 1.3500 amid quiet markets

GBP/USD keeps its range trade intact at around 1.3500 on Wednesday. The Pound Sterling holds the upper hand over the US Dollar amid pre-Christmas light trading as traders move to the sidelines heading into the holiday season.

Gold retreats from record highs, trades below $4,500

Gold retreats after setting a new record-high above $4,520 earlier in the day and trades in a tight range below $4,500 as trading volumes thin out ahead of the Christmas break. The US Dollar selling bias remains unabated on the back of dovish Fed expectations, which continues to act as a tailwind for the bullion amid persistent geopolitical risks.

Bitcoin slips below $87,000 as ETF outflows intensify, whale participation declines

Bitcoin price continues to trade around $86,770 on Wednesday, after failing to break above the $90,000 resistance. US-listed spot ETFs record an outflow of $188.64 million on Tuesday, marking the fourth consecutive day of withdrawals.

Economic outlook 2026-2027 in advanced countries: Solidity test

After a year marked by global economic resilience and ending on a note of optimism, 2026 looks promising and could be a year of solid economic performance. In our baseline scenario, we expect most of the supportive factors at work in 2025 to continue to play a role in 2026.

Avalanche struggles near $12 as Grayscale files updated form for ETF

Avalanche trades close to $12 by press time on Wednesday, extending the nearly 2% drop from the previous day. Grayscale filed an updated form to convert its Avalanche-focused Trust into an ETF with the US Securities and Exchange Commission.