CAD Consolidates Near 1.3900 as Oil Gains Offset Bullish USD Ahead of Fed

Data from Monday showed Canada's Consumer Price Index (CPI) remained steady at 3% in August, matching market forecasts. The Bank of Canada's preferred core gauge excluding food and energy also stayed near its 2% target.

This solid performance backs the case that interest rates will remain unchanged through 2026, contributing to a bullish US Dollar (USD). Additionally, economists at Royal Bank of Canada note that inflation 'remained comparatively contained,' with limited evidence that elevated energy costs were feeding into prices. This is consistent with their base case for holding interest rates through the remainder of 2026.

The USD Index (DXY) remains near a two-week high due to rising bets for an interest rate hike by the US Federal Reserve (Fed). Meanwhile, crude oil prices are at their highest since May 21, supporting the commodity-linked Canadian Dollar. However, the USD/CAD pair is capped beneath the 38.2% Fibonacci retracement and the 100-day Simple Moving Average (SMA) confluence around 1.3930.