Canadian dollar calm ahead of inflation data

[Redator]

The Canadian dollar is steady on Tuesday, after starting the week with gains of 0.48% against the US dollar. In the European session, USD/CAD is trading at 1.3765, down 0.09% on the day. It's a busy mid-week for Canadian events, with the August inflation report later today and the Bank of Canada decision on Wednesday.

Canada's CPI expected to climb to 2%

Headline CPI is expected to rise to 2% in August, up from 1.7% in July. Two key core inflation indicators are projected to post an average of 3.05% unchanged from July.

The Bank of Canada is widely expected to lower rates at Wednesday's meeting, after holding rates for three consecutive meetings. The markets are expecting a quarter-point reduction which would lower the policy rate to 2.75%, its lowest level since July 2022.

The economy is sending out distress signals. GDP in the second quarter contracted by 1.6% and the labor market shed 100 thousand jobs in July and August. The unemployment rate rose to 7.1% from 6.9%, a three-year high.

The weak data strongly supports the case for a rate cut but underlying inflation is well above the BoC's 2% target, which is likely the reason that the central bank has held off from lowering rates. With the labor market deteriorating, the BoC will likely respond with a rate cut in order to stop the bleeding. Underlying inflation remains higher than the BoC wants to see, but barring a huge increase in inflation, a rate cut appears a done deal.

The BoC remains concerned about the US-Canada trade war, which has created a lot of uncertainty with regard to the direction of growth and inflation. However, with the announcement in August that Canada would remove counter-tariffs on US goods covered by the Canada-US-Mexico ageement, the BoC is likely to be more comfortable lowering rates.

USD/CAD Technical

• USD has dropped below support at 1.3772 and is testing 1.3766. Below, there is support at 1.3757
• There is resistance at 1.3781 and 1.3787

USDCAD 4-Hour Chart, September 16, 2025

Opinions are the authors'; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. The provided publication is for informational and educational purposes only.
If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please refer to the MarketPulse Terms of Use.
Visit https://www.marketpulse.com/ to find out more about the beat of the global markets.
© 2025 OANDA Business Information & Services Inc.