Cooler CPI has reduced Bank of Canada rate-hike odds
USD/CAD is rising slightly after Canada's March CPI report came in softer than expected, reducing some of the pressure on the Bank of Canada to tighten policy later this year. Headline CPI rose by 2.4% year on year against expectations of 2.5%, while core CPI climbed by 1.9% versus forecasts of 2.3%. That softer inflation mix has helped push down the odds of a Bank of Canada rate hike by December.
For FX markets, that matters because a lower expected policy path tends to weigh on the Canadian dollar relative to the US dollar. The move has not been dramatic yet, but it has been enough to interrupt the pair's recent downtrend and bring a key technical support region back into focus.
USD/CAD is trying to reverse its April downtrend
From a technical perspective, USD/CAD appears to have found support around the lower Bollinger Band and at an important level that has been in play since March. That support area has helped the pair stabilise after peaking at the beginning of April, and it now leaves the market watching whether a more durable reversal can take hold.
If support continues to hold and Bank of Canada rate-hike expectations fade further, USD/CAD may push towards 1.376, where the 10-day exponential moving average is currently sitting. That would be an early sign that the pair is building a broader recovery rather than simply bouncing within a weaker trend.
