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On Thursday, the USD/CAD pair is likely to trade within a sideways range, consolidating its recent losses after hitting a four-week low the previous day. Spot prices held just above the 1.4025 mark, although the current fundamental situation favors bearish traders.
The U.S. dollar remains near its lows from June 18 amid declining expectations for a Federal Reserve interest rate hike.
According to data released on Wednesday, the U.S. producer price index (PPI) decreased by 0.3% last month, while the previous month's growth was revised down to 0.6%.
This decline comes amid a disappointing consumer price index (CPI) report published on Tuesday, prompting traders to further reduce their expectations for an imminent Federal Reserve rate hike, leaving dollar bulls on the defensive. However, concerns remain about inflation driven by energy prices in the context of the confrontation between the U.S. and Iran and supply disruptions in the Middle East.
The conflict between the U.S. and Iran sharply escalated this week, with both sides carrying out new attacks, and U.S. forces conducting airstrikes against Iranian missile and drone infrastructure. In response, Tehran attacked U.S.-linked military facilities in the region using drones and missiles. Additionally, a U.S. aircraft fired upon an unloaded oil tanker attempting to breach the naval blockade of Iranian ports.
These events signal an intensification of military confrontation. U.S. President Donald Trump heightened tensions by stating that critical Iranian infrastructure, such as power plants and bridges, could become targets if the situation continues to deteriorate. This will help maintain high oil prices and potentially lead to interest rate hikes, which in turn will keep traders from taking aggressive bearish positions on the USD/CAD pair, limiting its losses.
From a technical perspective, the pair is consolidating around the 1.4025 level. Oscillators are mixed, with the relative strength index moving into negative territory, favoring bears in the near term. However, it is worth noting that the 200-day SMA has taken on a horizontal direction, indicating sideways movement within the current range for an extended period. The table below shows the percentage change in the Canadian dollar against key currencies this week, with the Canadian dollar performing best against the Japanese yen.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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