Inflation Data And Market Reaction
US CPI rose 0.3% month-on-month in February, up from 0.2% in January. Headline CPI held at 2.4% year-on-year, while the Fed’s inflation target is 2%. In Canada, Statistics Canada releases February jobs data on Friday and February CPI next Monday. The next Bank of Canada rate decision is due next Wednesday. On the 4-hour chart, USD/CAD sat near the 20-period SMA but below the 100-period SMA, which limited gains around 1.3600. RSI rose from oversold levels but turned down below 50. Resistance is at 1.3630, with 1.3680 above it. Support sits at 1.3542, then 1.3525. Looking back to this time last year, we saw a sharp rebound in USD/CAD towards 1.3600. The catalyst was a major IEA oil release that pushed crude down from its highs, weakening the Canadian dollar. At the same time, US inflation was stubbornly sitting at 2.4%, keeping the Federal Reserve on hold.Central Bank Divergence And Trading Implications
Fast forward to today, March 12, 2026, and the oil story remains a key factor for the Canadian dollar. While West Texas Intermediate (WTI) isn’t trading at the dramatic highs we saw before the 2025 IEA release, its current price of around $79 a barrel is still weighing on the CAD. This dynamic continues to provide a floor for the USD/CAD pair. The key theme for us now is the growing difference between the US and Canadian central banks. A year ago, US inflation was 2.4%; recent data shows it remains elevated at 3.2%, pushing back expectations for Fed rate cuts. In contrast, Canadian inflation has cooled to 2.9%, fueling speculation that the Bank of Canada could begin cutting rates as early as June. For derivative traders, this suggests a bullish bias on USD/CAD in the coming weeks. We should consider buying call options with strike prices above the current level, perhaps targeting the 1.3680 resistance area mentioned last year. This strategy allows us to profit from a potential upward move while strictly defining our maximum risk. From a technical standpoint, the 1.3630 level remains a critical area to watch, just as it was in 2025. As long as we trade below it, rallies could be sold, but a decisive break above this zone would signal stronger upward momentum. We should view the 1.3540 area as the initial support level to defend. Create your live VT Markets account and start trading now.
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