The US Dollar (USD) came under pressure during the early Asian session on Friday, pushing the USD/CAD pair lower toward the 1.3955 level. The move reflects a broader softening in the Greenback, driven by renewed expectations that the Federal Reserve (Fed) could resume interest rate cuts later this year in response to cooling inflation data.
April’s US Producer Price Index (PPI), released by the Bureau of Labor Statistics, undershot market expectations, reinforcing the dovish sentiment. Headline PPI increased by 2.4% year-over-year, down from 2.7% in March and slightly below the forecast of 2.5%. Core PPI, which strips out volatile food and energy components, also decelerated, rising 3.1% from a year earlier compared to the previous 4% reading.
On a monthly basis, both headline and core PPI figures registered declines—falling 0.5% and 0.4%, respectively—suggesting that businesses may be absorbing higher input costs rather than passing them on to consumers, potentially in response to recent tariff-related pressures.
The labor market data remained steady, offering little relief for the Dollar. Initial Jobless Claims for the week ending May 10 came in at 229,000—unchanged from the prior week’s revised figure and aligned with market expectations. Continuing Claims, however, edged up by 9,000 to reach 1.881 million, signaling a modest uptick in ongoing unemployment.
Despite the USD’s broad decline, the Canadian Dollar (CAD) failed to capitalize fully on the momentum due to weakening crude oil prices. As a major oil exporter, Canada’s economy—and by extension the CAD—remains sensitive to fluctuations in oil markets. A sustained pullback in oil prices could limit the Loonie’s upside and temper bearish pressure on USD/CAD.
USD/CAD Outlook: Near-Term Support at 1.3930, Oil Prices in Focus
Technically, USD/CAD is trending lower, pressured by Fed rate cut bets and soft inflation prints. Immediate support lies near the 1.3930 area, followed by stronger downside protection around 1.3850. On the upside, resistance is seen near the 1.4000 psychological level, with a break above potentially challenging recent highs near 1.4080.
Further movement in the pair is likely to hinge on developments in crude oil prices and next week’s key macroeconomic releases from both countries. For now, the path of least resistance appears tilted slightly lower, barring a significant rebound in oil or a surprise hawkish shift in Fed commentary.
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