Canadian Dollar Holds Firm as Rising Oil Offsets a Stronger US Dollar Before PPI Data

USD/CAD is consolidating just above 1.3800 during Thursday’s Asian session, giving back some momentum after the previous day’s modest advance. Traders remain cautious ahead of key US inflation releases and are avoiding fresh directional positions.

The US Producer Price Index report is due later Thursday, followed by Consumer Price Index data on Friday. The figures could provide further insight into the Federal Reserve’s policy outlook, influencing demand for the US dollar and the next major move in USD/CAD.

Markets have increased the probability of a US interest rate hike at the Federal Reserve’s September 15-16 meeting. Persistent energy-related inflation supports the case for near-term monetary tightening, while escalating US-Iran tensions are boosting demand for the safe-haven dollar.

Iran attacked 10 ships near the Strait of Hormuz after the US said it had sunk five Iranian oil tankers in the Gulf of Oman and near Kharg Island. Concerns about a prolonged disruption to energy supplies pushed crude oil to a three-month high, supporting the commodity-linked Canadian dollar and limiting USD/CAD’s upside.

US Treasury yields also remained supported after investors reacted negatively to the Treasury’s plan to buy back as much as $6 billion in securities with maturities of 10 to 20 years. The development is providing some support to the dollar, although elevated oil prices may continue to help the loonie restrain further gains in the pair.

USD/CAD daily chart

Technical Analysis

USD/CAD remains under near-term bearish pressure below its 100-day Simple Moving Average at 1.3926. With the pair trading beneath this longer-term indicator, rebounds are still viewed as corrective unless buyers reclaim the 1.3900 level.

A sustained break below the 1.3770-1.3765 support zone would strengthen the bearish outlook and could extend the downtrend established over the past two months.

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