Canadian Dollar Analysis: USD/CAD starts the week with a bearish bias following Canada CPI data release

The trading week begins and, for now, the Canadian dollar appears to be regaining ground in a consistent manner. Recent USDCAD price movements show a depreciation of the pair of around 0.4%, which is beginning to signal a new short-term bearish bias.

The start of this selling pressure comes after the release of Canadian inflation data, which, although it did not generate a significant surprise, has allowed the Canadian dollar to gain ground in recent sessions. This is also being supported by the recent weakness shown by the U.S. dollar, and if both factors remain in place during the coming sessions, the bearish bias could continue gaining relevance in USDCAD price movements.

Canada inflation data released

Earlier today, new inflation figures for Canada were released. CPI M/M came in at 0.5%, below the 0.7% forecast, while Trimmed CPI Y/Y stood at 2.3%, also below both the forecast and the previous reading of 2.4%.

The data continues to show a gradual slowdown in inflation, with a downward trend that has been developing since October 2025, when inflation was above 3.00%. Current figures not only represent the lowest annual inflation rate in recent months, but also show that inflation is increasingly moving closer to the Bank of Canada’s 2.00% target.

Source: ForexFactory

Under normal conditions, lower inflationary pressure could weaken the Canadian dollar, as it would open the door for the central bank to consider interest rate cuts, reducing the relative attractiveness of investments denominated in the currency.

However, in the current context the data has not had that effect, and for now it has not changed expectations for Wednesday’s policy decision, where the Bank of Canada is expected to keep the interest rate unchanged at 2.25%, with more than 80% probability according to market expectations.

Inflation data may have taken a back seat due to the current geopolitical environment. The conflict in the Middle East has kept energy prices elevated, which could generate inflationary pressures in the data to be released for March. For this reason, the central bank may maintain a cautious stance, even though recent data shows some improvement in Canada’s inflation dynamics.

In this context, unless a longer series of inflation readings begins to move closer to the 2.00% target, the central bank is likely to maintain a neutral rate stance for a longer period, which could continue providing some support for the Canadian dollar against its major peers. This could eventually translate into more relevant selling pressure in USDCAD in the coming sessions.

The U.S. dollar gives up ground

Although the Middle East conflict remains ongoing, the U.S. dollar has recently started to lose part of the safe-haven demand it had previously attracted. This comes at a time when oil prices have started to ease in the short term, generating a temporary sense of reduced tension in the market amid the lack of new major updates.

This dynamic is already being reflected in the movements of the U.S. Dollar Index (DXY), which measures the strength of the U.S. dollar against other currencies. The index is currently trading below the key 100-point level, showing a downward slope and signs of short-term weakness.

Source: TradingEconomics

If the DXY continues to display this weakness, it could allow the Canadian dollar to keep recovering ground against the U.S. dollar, potentially reinforcing the selling pressure in USDCAD in the coming sessions.

 

USD/CAD Technical Outlook

Source: StoneX, Tradingview

• The bearish trendline tries to hold: Since the last days of November 2025, average USDCAD price movements have followed a consistent downward trendline, which has become the dominant technical pattern over recent months. Currently, as renewed selling pressure appears in the price action, this trendline continues to act as an important technical reference. If the bearish bias remains in place during the coming sessions, it could open the door to a further extension of the current downtrend in the short term.
   
• RSI: The RSI indicator remains close to the neutral 50 level, suggesting that buying and selling momentum is relatively balanced. If this dynamic continues, a phase of indecision could begin to develop in USDCAD price movements in the coming sessions.
   
• ADX: A similar scenario can be observed in the ADX indicator, which remains below the 20 level, signaling a reduction in trend strength in the short term. As long as the indicator stays in this zone, the chart could continue to reflect a low-directionality environment.
   

Key levels:

• 1.38015 – Key resistance: Level aligned with the 200-period moving average. Price movements above this area could confirm a structural bullish shift in the coming weeks, potentially opening the door for a new upward trend.
   
• 1.37034 – Key barrier: Area where the downward trendline converges with the 50-period moving average. A break above this level could invalidate the current bearish structure and favor a bullish bias in the following sessions.
   
• 1.35019 – Crucial support: Level associated with a recent neutrality zone. Movements back toward this area could reactivate dominant selling pressure and bring the broader downtrend back into focus.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25