Canadian Dollar Remains Under Pressure After Mixed Inflation Data

USD/CAD rose for a fourth consecutive session, trading near 1.39215. Although higher crude oil prices typically support the Canadian dollar, which is highly correlated with energy exports, a stronger US dollar offset that tailwind, keeping the loonie under sustained pressure. Traders showed a muted reaction to the latest Canadian inflation data, finding no clear signal to fuel a CAD rebound.

**Mixed Inflation Data Leaves CAD Without Directional Cue**

The latest data showed Canadian inflation ticking back up to around 3%, which could have provided some interest-rate expectation support for the loonie, as higher inflation would dampen the impetus for the Bank of Canada to signal further easing. However, market participants interpreted this cautiously. According to market sources, investors still lean toward the view that the Bank of Canada will keep its policy rate unchanged for the remainder of the year. This implies that, despite the seemingly CAD-positive inflation print, its strength is insufficient to drive a sustained one-way appreciation trend in the loonie, with price action largely dominated by US dollar factors.

**US Dollar Strength Dominates the Tape, Oil Price Support Limited**

The overall strength of the US dollar is the core driver behind the recent upside in USD/CAD. Ahead of key risk events, the greenback broadly firmed, directly offsetting the boost from higher crude prices to the Canadian dollar. WTI crude held near $84, with supply risk premiums in international energy markets heating up, theoretically underpinning the loonie. But analysts noted that the relationship between oil prices and the Canadian dollar is not a simple negative correlation. If energy prices continue to rise rapidly and reignite US inflation expectations, markets may scale back bets on Fed easing, which in turn would strengthen the dollar's rate advantage and further pressure the loonie.

**Technical Focus on Key Support, Outlook Hinges on External Variables**

From a technical standpoint, the 200-day moving average area at 1.3850, previously watched by the market, is viewed as a key technical defense line. As long as that zone holds, USD/CAD retains room for a rebound. Future price action will be highly dependent on Fed policy expectations, US inflation and employment data, and the subsequent trajectory of crude oil prices. If rising energy prices rekindle US inflation expectations while safe-haven demand for the dollar strengthens, USD/CAD could challenge the 1.4000 level.