Loonie Under Pressure Ahead of CPI as Trade Tensions and Oil Slump Weigh

Key Takeaways:

* Looming U.S. tariff deadline keeps pressure on the Canadian dollar, eroding confidence in the economic outlook.

*Inflation expected at 1.9%; a stronger print could support the loonie and bolster BoC’s steady policy stance.

*Crude’s slide to two-month lows adds downside risk, leaving CAD vulnerable if CPI misses expectations.

Market Summary:

The Canadian dollar remains on the defensive as escalating trade tensions with the United States continue to weigh on sentiment. With President Trump’s August 1 deadline for imposing aluminum tariffs fast approaching, market participants are growing increasingly nervous about potential retaliatory measures from Ottawa. This brewing trade conflict has cast a shadow over Canada’s economic recovery prospects, keeping investors cautious and the loonie under pressure in recent weeks.

Today’s consumer price index release takes on heightened significance as traders search for clues about the Bank of Canada’s policy path. Economists anticipate annual inflation to hold steady at 1.9 percent, with monthly growth expected to rebound to 0.3 percent following May’s flat reading. The central bank’s preferred core measures are also forecast to remain unchanged at 1.5 percent year-over-year. A stronger-than-expected print could lend some much-needed support to the embattled currency by reinforcing the case for policy stability, while disappointing figures would likely exacerbate the loonie’s recent weakness.

Recent labor market data provided a glimmer of hope for the Canadian economy as the unemployment rate unexpectedly improved to 6.9 percent in June, beating consensus estimates of 7.0 percent. The addition of 953,000 jobs last month, though largely reflecting reopening effects after pandemic-related shutdowns, suggests the economic recovery may be gaining some traction. This development has introduced a slightly less dovish tilt to monetary policy expectations, though central bank officials remain appropriately cautious given the uncertain outlook.

Commodity markets are compounding the loonie’s challenges, with West Texas Intermediate crude sliding to two-month lows near $39 per barrel. As a commodity-linked currency heavily dependent on energy exports, the Canadian dollar remains particularly vulnerable to fluctuations in oil prices. The recent pullback in crude reflects growing concerns about global demand recovery as several countries reintroduce coronavirus containment measures, creating additional headwinds for Canada’s export-driven economy.

As the loonie navigates this complex web of trade uncertainty, commodity price volatility, and domestic economic crosscurrents, today’s inflation release represents a critical near-term catalyst that could determine whether the currency finds its footing or extends its recent slide.

Technical Analysis 

EURCAD, H4:

EUR/CAD has been trading within an established uptrend channel, gaining nearly 2% since the start of August. The pair recently touched its highest level since 2018 but has since retreated, slipping around 0.5% in the last session as a technical correction sets in.

Currently, the pair is testing the lower boundary of its channel. A sustained break below could signal a bearish reversal, undermining the broader uptrend. Momentum indicators reinforce this risk: the RSI failed to enter overbought territory and is now edging toward a move below the midline, while the MACD has formed a bearish crossover and continues to drift lower—both pointing to waning bullish momentum.

Resistance level: 1.6155, 1.6264

Support level: 1.6050, 1.5935