USDCAD rallies on soft CPI but buyers still face an uphill battle

Traders found reasons for both inflation camps in Canada's September CPI release.

The annual headline rate climbed to 3.1% from 3.0% a month earlier, though the reading missed the 3.2% consensus. At the same time, the measure that strips out gasoline eased to 2.2% from 2.4%.

Energy is still the troublesome spot. Gasoline prices were up 27.8% year over year, while fuel oil and other fuels jumped 57.8%, and the pinch was felt most by Atlantic Canadian households. Shelter inflation also picked up, even as rent growth stayed flat and mortgage interest expenses kept falling.

Groceries offered the better news. Inflation in that category slowed to 1.7% on the year, the slowest pace since May 2024, while prices for fresh vegetables and for sugar and confectionery fell from a year earlier. The relief is welcome, yet a slower reading does not undo the earlier increases. Grocery prices are still 33.0% higher than in September 2020.

Where does this leave the Bank of Canada?

The overall rate rose, but energy was behind the pickup. The key issue for the central bank is whether elevated energy costs bleed into other categories.

The slower non-gasoline inflation reading provides a degree of comfort. Even so, the 0.4% seasonally adjusted monthly rise deserves scrutiny.

For currency traders, firmer inflation would normally lift Canadian yields and the Canadian dollar, weighing on USDCAD. The downside surprise in the headline figure and the softer non-gasoline gauge weaken that case.

What do the technicals indicate for traders now?

The sellers are in charge. Will buyers manage to hold 1.4082?

Before the release, USDCAD slid to a session low of 1.4071. That put the pair beneath the 38.2% retracement at 1.40818 of the climb from the August 21 low to October's highs around 1.42984.

After the data, the currency pair bounced to 1.41119 before the rebound ran out of steam. It has since slipped back under 1.4100, changing hands near 1.4095.

For the bulls, the first task is to stay above 1.40818. That offers a floor to position against and a way to manage risk. On its own, though, it does not hand them control.

A drop back through that level, with prices holding beneath it, would confirm the sellers' grip. The next downside marker would be the 1.4071 session low, then the 100-day moving average at 1.40377. The last time the pair traded below that average was September 16.

Support that has been lost turns into resistance.

To the upside, buyers must first clear the correction high that followed the report, around 1.4112.

Just above lies a more significant swing zone spanning 1.41297 to 1.41532. That range has marked key reversals since November 2025, including the stretch from June 19 to July 14 this year.

The pair cleared that zone on September 28. With USDCAD back underneath, the former support now acts as resistance.

If buyers can push above that region and remain there, they would gain more influence over the trend.

For now, however, buyers still have work ahead. Sellers keep control, with 1.4082 serving as the near-term gauge. Holding above gives the bulls a chance to mount a rebound; losing it opens the way to another leg lower.