USDCAD Really Faces Inflation Test

The USDCAD pair finds itself in a precarious near-term balance, torn between bullish momentum fuelled by hawkish US data and lingering dovish expectations for the Bank of Canada (BoC). With key economic releases from both nations on the horizon, traders are bracing for potential volatility and a possible shift in the current trend. 

Recent hotter-than-expected US inflation data, including a December CPI of 3.4%, has renewed concerns about persistent price pressures and triggered a resurgence of the US dollar. This hawkish tilt has bolstered the greenback against major currencies, including the Canadian dollar. 

Despite Canada’s inflation ticking up slightly in December, BoC Governor Macklem has hinted at a potential shift towards rate cuts later in 2024. This dovish outlook, coupled with a softening Canadian economy, keeps a lid on the Loonie’s upward potential. 

Investors remain divided on the future trajectory of both currencies. While some see the recent US data as a temporary blip, others believe it could lead to a prolonged period of elevated rates. While the BoC has kept rates steady, the impact of the CPI data could shape expectations for future monetary policy decisions. BoC rate cut bets are still priced in for later this year, but the timing and pace remain uncertain. 


On the 4-hour chart, USDCAD is trading at 1.34764, with a bullish bias. The price action comfortably resides above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), signalling a positive trend. The recent crossovers, where the 20-SMA broke above the 50-SMA and 100-SMA, strengthen the bullish momentum. 

The RSI, at 65.46, retraced slightly from overbought levels, suggesting a potential for further upside. If bulls sustain momentum, short-term trading opportunities could emerge towards the 1.35455 resistance level. A break above this resistance might open the door to higher levels at 1.35869 and 1.36162. 

Conversely, if economic reports push the price lower, initial support at 1.34422 could be tested. A break below this level might expose support levels at 1.34041 and 1.33393 in the short term. 


The upcoming economic data releases from the US and Canada will be crucial in determining the near-term direction of USDCAD. Hawkish surprises from the US could bolster the greenback and push the pair towards its resistance levels. Conversely, hawkish signals from the BoC or hotter Canadian data could reignite the Loonie’s rally and drag USDCAD lower. 

Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire. 

 Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

Disclaimer: Trive South Africa (Pty) Ltd (hereinafter referred to as “Trive SA”), with registration number 2005/011130/07, is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, 37 of 2002. Trive SA is authorised and regulated by the South African Financial Sector Conduct Authority (FSCA) and holds FSP number 27231. Trive Financial Services Ltd (hereinafter referred to as “Trive MU”) holds an Investment Dealer (Full-Service Dealer, excluding Underwriting) Licence with licence number GB21026295 pursuant to section 29 of the Securities Act 2005, Rule 4 of the Securities Rules 2007, and the Financial Services Rules 2008. Trive MU is authorized and regulated by the Mauritius Financial Services Commission (FSC) and holds Global Business Licence number GB21026295 under Section 72(6) of the Financial Services Act. Trive SA and Trive MU are collectively known and referred to as “Trive Africa”.

Market and economic conditions are subject to sudden change which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. Trive Africa and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered. Please consider the risks involved before you trade or invest. All trades on the Trive Africa platform are subject to the legal terms and conditions to which you agree to be bound. Brand Logos are owned by the respective companies and not by Trive Africa. The use of a company’s brand logo does not represent an endorsement of Trive Africa by the company, nor an endorsement of the company by Trive Africa, nor does it necessarily imply any contractual relationship. Images are for illustrative purposes only and past performance is not necessarily an indication of future performance. No services are offered to stateless persons, persons under the age of 18 years, persons and/or residents of sanctioned countries or any other jurisdiction where the distribution of leveraged instruments is prohibited, and citizens of any state or country where it may be against the law of that country to trade with a South African and/or Mauritius based company and/or where the services are not made available by Trive Africa to hold an account with us. In any case, above all, it is your responsibility to avoid contravening any legislation in the country from where you are at the time.

CFDs and other margin products are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. See our full Risk Disclosure and Terms of Business for further details. Some or all of the services and products are not offered to citizens or residents of certain jurisdictions where international sanctions or local regulatory requirements restrict or prohibit them.