- USD/CAD rose toward 1.3870 on Friday, extending its advance for a third consecutive session as the Canadian Dollar weakened alongside falling oil prices.
- US CPI inflation held at 3.4% year over year in August, while monthly core CPI rose a stronger-than-expected 0.3%.
- WTI crude oil fell more than 4% below $100, adding pressure on the oil-sensitive Canadian Dollar.
USD/CAD rose toward 1.3870 on Friday after briefly reaching 1.3882 following the release of the latest US Consumer Price Index (CPI) report. The currency pair is heading for a third consecutive session of gains as falling oil prices weigh on the Canadian Dollar (CAD), while the US Dollar struggled to hold its initial post-CPI advance.
US headline inflation remained at 3.4% year over year in August, matching market expectations and unchanged from July. On a monthly basis, the Consumer Price Index increased 0.4%, accelerating from the previous 0.1% increase. The underlying inflation figures were slightly firmer. Core CPI rose 0.3% month over month, above the 0.2% forecast, although annual core inflation eased to 2.4% from 2.5%.
US Dollar Struggles to Hold Gains After CPI
The US Dollar initially strengthened after the CPI report as markets reacted to the stronger-than-expected monthly core inflation reading. However, the move quickly lost momentum.
Annual headline inflation remained unchanged at 3.4%, while annual core inflation continued to moderate. That reduced the case for a significantly more hawkish repricing of Federal Reserve interest-rate expectations.
For USD/CAD, the result left the US Dollar providing only part of Friday’s upside. Weakness in the Canadian Dollar has become the more important driver of the pair.
Why Is the Canadian Dollar Falling Today?
The Canadian Dollar is falling today as crude oil prices retreat sharply, weakening one of the currency’s traditional sources of support. West Texas Intermediate (WTI) crude fell more than 4% to around $95.90 per barrel, dropping back below the closely watched $100 level after recently reaching a four-month high.
The decline in oil has weighed heavily on the Canadian Dollar, given Canada’s position as a major crude exporter. That relationship has helped USD/CAD continue higher even as the US Dollar surrendered part of its immediate post-CPI gains.
Oil Price Falls Below $100, Weighing on Canadian Dollar
Oil has become a particularly important catalyst for the USD/CAD exchange rate following the sharp volatility in energy markets. WTI crude fell approximately 4.6% on Friday after encountering strong selling pressure above $100.
Lower oil prices can weigh on Canada’s trade outlook and reduce demand for the Canadian Dollar, making sharp movements in crude particularly relevant for USD/CAD. The latest oil selloff therefore leaves the Loonie under pressure despite the relatively limited reaction of the broader US Dollar to the inflation report.
US CPI Keeps Fed Rate Outlook in Focus
Friday’s US CPI report provided a mixed inflation signal ahead of the Federal Reserve’s September policy meeting. Headline CPI increased 0.4% month over month and remained at 3.4% annually. Meanwhile, the stronger 0.3% monthly core reading suggests underlying inflation pressures have not disappeared.
However, annual core inflation slowing to 2.4% prevents the report from delivering an entirely hawkish signal. The data follows Thursday’s stronger producer inflation figures and last week’s resilient US employment report, leaving the Fed interest-rate outlook a key driver for the US Dollar heading into next week’s decision.
USD/CAD Forecast: Oil Weakness Keeps 1.3900 in Focus
The near-term USD/CAD forecast remains supported around 1.3870, primarily as falling oil prices continue to pressure the Canadian Dollar. The pair reached 1.3882 following the CPI release, putting the 1.3900 area within reach if Canadian Dollar weakness continues.
However, the US Dollar’s inability to hold its initial CPI-driven gains could limit the upside. A recovery in crude oil could also provide some relief for the Loonie.
For now, oil prices and shifting Fed rate expectations remain the main catalysts for USD/CAD, with the pair maintaining its recent upward momentum near 1.3870.
USD/CAD is rising as the Canadian Dollar weakens alongside falling oil prices. The pair also briefly benefited from a stronger US Dollar following the August CPI report.
The Canadian Dollar is under pressure after WTI crude oil fell more than 4% and dropped below $100 per barrel. Canada is a major oil exporter, making the Loonie sensitive to large movements in crude prices.
Higher-than-expected US inflation can support the US Dollar if it increases expectations for tighter Federal Reserve policy. However, USD/CAD is also heavily influenced by Canadian economic conditions and oil prices.