Range-Bound Ahead Of Retail Data, BoC

The Dollar to Canadian Dollar (USD/CAD) exchange rate eased on Wednesday, slipping below the 1.40 handle as firmer inflation data and steady yields lent the Loonie modest support.

DAILY RECAP:

The Canadian Dollar extended its cautious recovery through midweek trade, firming modestly against the broadly resilient US Dollar after stronger-than-expected domestic inflation data offered a short-term lift.

According to Scotiabank, “the CAD remains range-bound but has scratched a minor gain against the generally firm USD since the start of the week,” with September’s CPI surprise helping “lift domestic yields fractionally and give the CAD a minor toehold against the USD.”

Despite the data beat, markets continue to price in a high probability — just under 80% — of a Bank of Canada rate cut at next week’s meeting. Governor Tiff Macklem has reiterated that growth and labour market trends remain weak, keeping the policy tone “clearly lean dovish.”

Scotiabank added that while a further cut is likely, it “might be the last in the Bank’s cycle,” a view that could allow the Loonie to remain relatively steady in the near term.

From a technical standpoint, analysts noted that USD/CAD has “been consistently capped above 1.4050,” with key support around 1.3990 and the 200-day moving average near 1.3963. A sustained move below those levels would strengthen the case for additional CAD gains.

Near-Term USD/CAD Forecast: Loonie Steady Ahead of Retail Sales Data

The short-term outlook for USD/CAD appears neutral to slightly bearish, with technical resistance around 1.4080 and a soft bias while the pair holds below 1.40. The Canadian Dollar’s resilience will be tested by Thursday’s retail sales reports (13:30 UTC), including headline and ex-auto data for August and preliminary figures for September.

Consensus forecasts point to a monthly gain of 1.0% for August, with ex-auto sales expected to rise 1.2%. A stronger print could reinforce the view that the economy remains stable enough for the BoC to slow or pause its easing cycle after October’s meeting.

For now, steady oil prices and a softer US yield curve are helping cushion the CAD against a firmer Dollar backdrop, suggesting the pair may continue to drift between 1.3950 and 1.4050 ahead of the policy decision.

Beyond retail data, traders will focus on next week’s Bank of Canada policy decision, where a quarter-point rate cut remains widely anticipated. Market reaction will hinge on whether policymakers signal an end to the easing cycle — a development that could provide a modest lift to the CAD if paired with firmer domestic data.

South of the border, broader Dollar direction will be influenced by upcoming US labour and housing figures. Stronger readings could keep the greenback underpinned, while signs of cooling may see USD/CAD drift back toward the 1.39 area as risk appetite improves.