USD/CAD Holds Near 1.3800 as Hot US PPI Lifts Dollar Ahead of Retail Sales Data

USD/CAD Holds Near 1.3800 as Hot US PPI Lifts Dollar Ahead of Retail Sales Data

The USD/CAD currency pair continues to trade firmly near the 1.3800 mark during Friday's Asian session, holding onto Thursday’s gains as the US Dollar (USD) remains supported by stronger-than-expected inflation data. The momentum comes ahead of the key US Retail Sales release, which could provide further clues about the Federal Reserve’s monetary policy path.

At the time of writing, the US Dollar Index (DXY) is holding steady around 98.00, supported by the July Producer Price Index (PPI), which came in hotter than expected. Both headline and core PPI rose 0.9% month-over-month, significantly exceeding forecasts of 0.2%, suggesting stronger inflationary pressures at the producer level.

Analysts believe that US businesses may be passing tariff-related cost pressures on to consumers, fueling short-term inflation. Despite this, markets are still largely pricing in a Fed rate cut in September, citing signs of a cooling labor market and broader economic uncertainty.

Looking ahead, traders are eyeing the July US Retail Sales data, scheduled for release at 12:30 GMT. Market consensus expects a 0.5% monthly increase, slightly lower than June’s 0.6% rise. The University of Michigan Consumer Sentiment Index, also due later today, could add to volatility.

On the Canadian side, the Bank of Canada (BoC) continues to strike a cautious tone. The BoC Summary of Deliberations, released Wednesday, revealed that officials debated whether interest rates are low enough to absorb the economic impact of US-imposed tariffs. While the BoC kept its key rate steady at 2.75% in July, policymakers left the door open for further rate cuts, especially if economic pressures persist.

Technically, USD/CAD is attempting to break above its 100-day Moving Average (1.3822). The 14-day Relative Strength Index (RSI) has risen to around 60, indicating strengthening bullish momentum. A sustained move above the August 1 high of 1.3880 could pave the way toward the May 15 high of 1.4000, and possibly the April 9 low of 1.4075.

However, if USD/CAD fails to maintain its current levels and breaks below the June 16 low of 1.3540, the pair could slip toward the psychological support at 1.3500 and then the September 25 low at 1.3420.

For now, the US Retail Sales release is expected to be the primary driver of short-term direction in USD/CAD, along with evolving sentiment on Fed and BoC policy paths.