Canadian dollar analysis: USD/CAD gains momentum after US CPI

As the trading week progresses, a clear short-term weakness in the Canadian dollar has started to emerge, as USD/CAD is showing a gain of nearly 0.3% in the session in favor of the US dollar.

The new consistent buying pressure observed in the short-term price action is mainly driven by the release of US CPI inflation data, which came above expectations. This has provided short-term support to the US dollar, making it more difficult for the Canadian dollar to gain ground.

This effect has become the key catalyst to watch in USD/CAD price action and could remain relevant, supporting continued buying pressure in the coming trading sessions.

Inflation data takes center stage

During today’s session, US CPI data was released, and although the expected reading was 3.7%, the actual figure came in higher at 3.8%, reinforcing expectations of rising inflation in the short term.

Source: FXSTREET

The key takeaway from this latest inflation reading is not only that inflation continues to show a consistent increase compared to the yearly low of 2.4%, but also that it is moving further away from the Federal Reserve’s 2.00% target.

Additionally, the fact that the data exceeded expectations suggests that inflationary pressures could be more persistent than previously anticipated, increasing concerns about the outlook for inflation in the coming months.

Source: TradingEconomics

This dynamic points toward a scenario in which the Federal Reserve could maintain a more aggressive stance in its upcoming policy decisions, limiting the room for rate cuts in the short term.

In fact, according to CME Group probabilities, for the June 17 decision there is a 97.6% probability that rates will remain at the current 3.75% level, reflecting expectations of a prolonged higher-rate environment.

This scenario has already started to be reflected in the bond market, where US 10-year Treasury yields have moved above recent highs and are now around the 4.45% level, levels not seen since July 2025. This behavior is directly linked to expectations of a more restrictive central bank stance.

Source: TradingEconomics

What makes this environment particularly relevant is that the continued increase in bond yields enhances the attractiveness of USD-denominated investments, making them more competitive relative to other markets.

This can drive international capital flows toward US assets, strengthening demand for the US dollar. In fact, this effect is already visible in the DXY index, which has moved back above the 98 level and is showing a renewed upward slope, suggesting that demand for the US dollar is strengthening once again in the short term.

Source: TradingEconomics

Taking all of this into account, the CPI release has clearly been a key event: it has reinforced expectations of a more restrictive central bank, supported higher bond yields, and strengthened the US dollar in the short term.

In this context, it continues to be difficult for the Canadian dollar to recover ground, and as long as this dynamic remains in place, it is likely that buying pressure in USD/CAD will continue to be relevant in the coming sessions.

 

Technical outlook for USD/CAD

Source: StoneX, Tradingview

• The broad range remains intact: Despite the recent recovery in USD/CAD, it still stands out that, beyond the current upward move, price continues to trade within a well-defined sideways channel, bounded by resistance around 1.39215 and support near 1.35418. In this context, as long as price remains within this range, sideways conditions are likely to continue dominating, with no clear directional trend in the short term.
   
• RSI: Looking at the RSI, the indicator has begun to move above the 50 level, suggesting that short-term momentum is shifting toward a bullish bias. If this behavior persists, current buying pressure could remain relevant in the coming sessions.
   
• MACD: A similar pattern can be observed in the MACD, where the histogram has started to move above the zero level, indicating that short-term moving average strength is also turning bullish. This reinforces the relevance of the current bullish bias in the short term and its potential continuation.
   

Key levels:

• 1.38153 – Key resistance: A level of recent highs aligned with the 200-period moving average. Price action that manages to break above this level with strength could reinforce a more consistent bullish bias, challenge the current range structure, and begin to test the longer-term bearish trendline. This could open the door to a more relevant bullish structure in the coming weeks.
   
• 1.37227 – Near-term barrier: A neutral zone aligned with the 50-period moving average. Price action that remains close to this level could continue to highlight a phase of consistent indecision and reinforce the dominance of the current range in the short term.
   
• 1.35418 – Key support: A level corresponding to the 2026 lows and the main downside barrier. A break below this zone could reaffirm the dominance of bearish bias and support the continuation of the long-term downtrend as the prevailing structure in the medium term.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25