Fundamental Outlook

The USD/CAD pair has come under increasing selling pressure, driven by weaker demand for the US dollar after US inflation data came in below market expectations. This reinforced investor expectations that the Federal Reserve could move toward easing monetary policy in the coming months if inflationary pressures continue to moderate.

Markets are now turning their attention to a series of key economic events that could influence the pair. Investors are awaiting the release of the US Producer Price Index (PPI), which serves as an early indicator of inflation trends. A stronger-than-expected reading could reinforce expectations that inflation remains persistent, supporting the US dollar and limiting its recent weakness. Conversely, a softer-than-expected reading could strengthen market bets on future Fed rate cuts, putting additional pressure on the greenback.

 

Meanwhile, markets are also awaiting the Bank of Canada’s interest rate decision, along with the Monetary Policy Report and the Governor’s press conference. A more hawkish tone from the Bank of Canada could provide further support to the Canadian dollar, increasing downside pressure on USD/CAD. On the other hand, a more dovish stance could allow the pair to stage a corrective rebound. In addition, investors will closely monitor Federal Reserve Chairman Kevin Warsh's congressional testimony for any fresh clues regarding the future direction of US monetary policy.

Technical Outlook

Figure: USDCAD, H4, Trading ViewFigure: USDCAD, H4, Trading View

USD/CAD had been trading within a well-defined uptrend, forming a series of higher highs and higher lows, highlighted by the green markers on the chart. However, the trend shifted after the pair broke below 1.42016, which represented the last Higher Low in the bullish market structure. This break signaled a transition from a bullish to a bearish trend.

The continued formation of lower highs and lower lows has since confirmed the bearish structure and highlighted the ongoing weakness of the US dollar against the Canadian dollar.

From a short-term perspective, the pair could witness a corrective rebound toward the highlighted supply zone between 1.41475 and 1.41581 before potentially resuming its downward trend, provided bearish momentum remains intact and selling pressure on the US dollar persists.

On the upside, 1.41747 represents the latest Lower High within the current bearish structure. A break and sustained close above this level would signal a shift from a bearish to a bullish market structure, invalidating the bearish scenario and opening the door for further upside.