USD/CAD is giving back part of Thursday’s earlier gains as the US Dollar loses momentum despite fresh evidence of renewed producer-price pressures in the United States. The pair climbed to an intraday high of 1.3835 before retreating toward 1.3815, while stronger Oil prices continue to provide support for the Canadian Dollar.
US Producer Price Index (PPI) inflation accelerated in August, rising 0.4% month-on-month, in line with expectations and up from July’s 0.1% increase. Annual PPI inflation advanced to 5.4%, exceeding the 5.3% forecast and rising from 4.8%. However, underlying price pressures were somewhat softer, with core PPI increasing 0.2% monthly, below the 0.3% market expectation. Annual core PPI rose to 4.6% from 4.3%, matching forecasts.
The latest inflation figures have kept expectations for a Federal Reserve rate increase alive. Markets are pricing roughly a 64% probability of a 25-basis-point hike at the September 15–16 meeting, according to CME FedWatch. Investors will now focus on Friday’s US Consumer Price Index report for stronger confirmation of the Fed’s next policy move.
The US Dollar Index remains near 98.96 after touching 99.20, while the 10-year US Treasury yield has climbed toward 4.92%, its highest level since November 2023. Despite these developments, the Greenback has struggled to extend its recovery.
Meanwhile, WTI crude is trading near $97.20 per barrel and has gained more than 8% this week. As a major crude exporter, Canada typically benefits from stronger Oil prices, offering additional support to the CAD.
National Bank of Canada notes that the loonie has strengthened significantly during Q3 on positive economic surprises and firmer Oil and gold prices. Nevertheless, deteriorating Canada-US trade negotiations and higher tariffs could weigh on Canadian growth, potentially allowing USD/CAD to rebound toward 1.40 before resuming its broader decline.
Geopolitical tensions around the Strait of Hormuz are also keeping a risk premium embedded in Oil and gold, further supporting the Canadian currency.
Trade Idea:
Consider selling USD/CAD near 1.3830–1.3850, targeting 1.3750 and 1.3700, with a stop-loss above 1.3900 if Oil strength persists.
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