The US Dollar against the Canadian Dollar (USD/CAD) remains under downward pressure, as markets await US Producer Price Index data and the Bank of Canada's interest rate decision to determine the pair's next direction.
Fundamental Outlook
The USD/CAD pair is facing increasing selling pressure, driven by declining demand for the US dollar following US inflation data that came in below market expectations. This reinforced investors' expectations that the Federal Reserve may move toward monetary easing in the coming months if inflationary pressures continue to subside.
Market attention today turns to a set of influential economic data and events affecting the pair. Investors are eagerly awaiting the release of the US Producer Price Index (PPI), a leading indicator of inflation trends. A higher-than-expected reading could reinforce expectations of persistent inflationary pressures, supporting the US dollar and limiting its decline. Conversely, weaker-than-expected data could increase market bets on interest rate cuts by the Federal Reserve, putting further pressure on the greenback.
Markets are also anticipating the Bank of Canada's interest rate decision, alongside the monetary policy statement and press conference. Any hawkish tone from the bank could support the Canadian dollar and increase pressure on USD/CAD, while a less hawkish stance might give the pair an opportunity for a corrective rebound. Additionally, Federal Reserve Chair Kevin Warsh's testimony will be closely monitored for new signals regarding the future of US monetary policy.
Technical Perspective
Chart: US Dollar vs. Canadian Dollar, 4-Hour Timeframe, TradingView
The USD/CAD pair was trading within a clear upward trend, forming a series of higher highs and higher lows, indicated by the green points on the chart. However, this trend shifted after breaking the 1.42016 level, which represented the last higher low within the bullish structure, signaling a trend reversal from bullish to bearish.
The continued formation of lower highs and lower lows confirmed seller dominance and the ongoing weakness of the US dollar against the Canadian dollar.
Regarding current price action, the pair may experience a corrective rebound toward the supply zone highlighted by the red box, located between 1.41475 and 1.41581, before resuming the downward trend, provided that prices maintain negative momentum and continued pressure on the US dollar.
On the other hand, the 1.41747 level represents the last lower high within the current structure. Therefore, a breakout and close above this level would signal a structural change from bearish to bullish, invalidating the negative scenario and opening the door for new upward movements.
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