The Canadian Dollar is holding steady even after the latest Consumer Price Index (CPI) data, which met expectations and shows a slight easing in core inflation pressures. This stability does not change the Bank of Canada’s short-term policy outlook, with the USD/CAD exchange rate remaining in the low 1.37s. Core prices have been on an upward trend since the beginning of the year. However, uncertainty is making the Bank cautious. Currently, swaps indicate only a small chance of rate cuts, with around 8 basis points priced in for July. The value of the Canadian Dollar is slightly away from its estimated fair value of 1.3649 as global market sentiment stabilizes.

Technical Analysis

Recently, there was a weak rejection around the 1.38 mark. However, the pair bounced back from support in the upper 1.36 range. For the USD to experience consistent downward movement, it must drop below the 1.3675 support level. At the moment, the exchange rate is expected to fluctuate around the 1.37 mark in the short term. Inflation data is coming in close to analysts’ predictions, with only a slight easing in core pressures. The market response has been subdued. The Canadian Dollar is not gaining strength despite this small decline in price growth, but it also isn’t under significant pressure. This suggests that major shifts in monetary policy are unlikely—especially with only 8 basis points of easing priced in for the July meeting, indicating little market expectation for immediate rate changes. In a climate where central banks are cautious due to moderate inflation, we typically see lesser volatility in rate-sensitive instruments. This is evident in the stable behavior of the USD/CAD pair, which remains in the low 1.37 range, neither strongly bullish nor bearish.

Market Outlook

Even though the spot rate has approached levels near 1.38, sellers have stepped in, indicating respect for this resistance level. At the same time, demand has been noticeable in the upper 1.36 area. The bounce from support confirms that there isn’t a strong directional trend yet. This is important for traders, especially in derivatives where earlier price movements influence future trends. To see more downward movement in the USD, the exchange rate must break below 1.3675. Without this drop, the case for further declines is weak. Any brief dips in prices may quickly recover due to buying interest near that support level. Volatility is decreasing, possibly hinting at a lull before more significant movements. Current pricing reflects this as we keep returning to mid-1.37 levels, suggesting short-term trends are dominating over long-term ones. According to fair value models, the USD/CAD exchange rate is about 50 pips lower than current spot rates. As global risk appetite stabilizes, we shouldn’t expect major fluctuations. Implied volatility rates are trending down, likely leading to lower premiums in short-dated strategies as well. Any significant move will depend on changes in the crude oil markets or shifts among G10 central banks—none of which appear imminent. Given this environment, a steady approach is justified. Keep an eye on support and resistance levels but be prepared to exit short gamma positions if the price remains around 1.3700. In a calm macroeconomic climate, selecting the right strike and timing may be more crucial than just finding the perfect entry point. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now