Canadian Dollar falls despite Oil gains as trade tensions take center stage

• USD/CAD gains 0.30% on Wednesday, with renewed US-Canada trade tensions weighing on the Canadian Dollar.
• Core Personal Consumption Expenditures inflation holds steady at 3.3% in July, in line with market expectations.
• Oil prices rise 0.60% to $81.20, offering some support to the Canadian currency and potentially limiting the pair’s upside.

USD/CAD rises 0.30% on Wednesday, trading around 1.3880 at the time of writing. The pair remains supported by renewed trade tensions between the United States (US) and Canada, which weigh on the Canadian Dollar (CAD), while the latest US inflation figures provide some support to the US Dollar (USD). However, rising Oil prices offer a tailwind to the commodity-linked Loonie and could limit further gains in the pair.

In the US, inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, stands at 3.7% YoY in July, unchanged from the previous month but above the 3.6% expected by markets. The core PCE Price Index, which excludes volatile food and energy components, remains steady at 3.3% YoY, in line with the market consensus. On a monthly basis, both the headline and core indices rise by 0.2%.

Attention now turns to the Jackson Hole Symposium, where Federal Reserve (Fed) Chair Kevin Warsh could provide further guidance on the monetary policy outlook. Markets will look for clues on how persistent inflation could affect the US central bank’s policy plans.

On the Canadian side, the Loonie remains caught between opposing forces. Trade tensions between Washington and Ottawa are putting pressure on the Canadian currency, but higher Oil prices provide some support. Oil rises 0.60% on Wednesday to around $81.20 at the time of writing. As Canada is a major Oil exporter to the US, higher energy prices generally provide a supportive backdrop for the Canadian Dollar.

Trade tensions remain a key headwind. Canadian Finance Minister Francois-Philippe Champagne announced retaliatory tariffs of up to 50% on a range of US products after negotiations failed to produce a trade agreement. US President Donald Trump responded by threatening another round of tariffs targeting Canadian cars, trucks, auto parts and steel.

Against this backdrop, USD/CAD maintains a positive bias around 1.3880. US-Canada trade tensions and sticky US inflation support the pair, while the rise in Oil prices provides some relief to the Canadian Dollar and could restrain the pair’s advance.

USD/CAD technical analysis

In the one-hour chart, USD/CAD trades at 1.3886, maintaining a bullish near-term tone as it holds above both the 100-period simple moving average (SMA) at 1.3817 and the 200-period SMA at 1.3838. The pair is also trading above the broken former downward resistance trend-line and the rising support trend-line at 1.3865, reinforcing a constructive structure. However, the Relative Strength Index (RSI) at 72 suggests overbought conditions, hinting that upside momentum could be prone to consolidation or a shallow pullback before a fresh leg higher.

On the topside, initial resistance is located at the horizontal barrier around 1.3910, where a clear break would open the way for a continuation of the uptrend. On the downside, immediate support is seen at the uptrend near 1.3865, followed by the 200-period SMA at 1.3838 and the 100-period SMA at 1.3817, while the prior trend-line around 1.3805 offers an additional structural floor if corrective pressures deepen.

(The technical analysis of this story was written with the help of an AI tool. Know more.)