Canadian Dollar Defies CPI Miss as Inflation Expectations Rise: USD/CAD, AUD/CAD

The Canadian dollar strengthened despite a slightly softer-than-expected CPI report, as rising longer-term inflation expectations complicated the Bank of Canada's rate outlook. With the BoC meeting on 28 October, conflicting inflation signals could shape expectations for USD/CAD and AUD/CAD.

View related analysis:

Canadian Dollar Holds Firm as BoC Inflation Risks Persist

The Canadian dollar strengthened against most FX majors on Monday despite a slightly softer-than-expected CPI report and reduced expectations of an October BoC hike. Headline CPI rose 3.1% y/y, just below the 3.2% expected, while trimmed mean inflation eased to 1.84%. That divergence suggests inflationary pressures remain relatively contained beneath the headline figure, giving the BoC some breathing room ahead of its 28 October meeting.

BoC Surveys Reveal Persistent Inflation Risks

However, the BoC's quarterly surveys presented a less dovish picture. While consumer inflation expectations edged lower over the one- and two-year horizons, five-year expectations rose to 3.9% from 3.4% in Q2, their highest level in the available series since 2015. Businesses also reported persistent inflation pressures from energy prices and tariffs, raising concerns that price increases could become more widespread.

This divergence may help explain why CAD remained supported despite softer near-term BoC pricing. While an October hold appears increasingly likely, elevated longer-term inflation expectations suggest the tightening cycle may not be over. Attention now turns to whether the BoC's updated projections reinforce expectations of further hikes later this year or into 2027.

USD/CAD Technical Analysis: US Dollar vs Canadian Dollar

The potential pullback I had been circling for USD/CAD has finally got underway, with last week’s bearish engulfing candle snapping a five-week winning streak. It is also the third candle of the bearish reversal pattern known as an evening star formation. Prices continued lower on Monday following the hotter long-term inflation outlook, even though the US dollar index held its ground.

The daily chart shows that Monday’s low found support almost perfectly at the monthly pivot point and 50-day EMA. And with the daily RSI (2) oversold below 10 and a lower wick on the daily candle, perhaps we’ve seen the best part of the initial move lower for USD/CAD. Bears may therefore be seeking to fade smaller bounces into resistance levels from here, which brings the 2025 high, 1.42 handle or June high into focus – in anticipation of a move down towards 1.40.

Source: ICE, TradingView

AUD/CAD Technical Analysis: Australian Dollar vs Canadian Dollar

Momentum has turned lower on AUD/CAD after a very brief parity party – and with traders less certain of RBA hikes, the cross has the potential to move lower. Note that the AU–CA two-year yield spread is heading lower ahead of prices as markets continue to reprice relative expectations between the RBA and BoC.

Last week’s candle wasn’t quite a bearish engulfing – but it was close enough. The daily chart shows a shooting star candle on Thursday and a lower high, ahead of a direct break beneath the monthly pivot point down to monthly S1. While AUD/CAD is showing signs of support around S1, bears may be seeking to fade minor rallies within Thursday’s bearish candle in anticipation of a move down to the April 2021 high or 200-day EMA. A break beneath these levels would bring the 50-week EMA into focus near the 0.97 handle.

Source: ICE, TradingView

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.