The USD/CAD pair on Thursday reached a three-month price high, trading firmly in the 38 region. The pair has shown upward momentum for three consecutive weeks after a sharp drop to the 1.3560 level. Despite WTI crude prices trading around $92-95 per barrel, the USD/CAD continues to rise confidently towards the 40s.
A turning point for the Canadian dollar came during the Bank of Canada's March meeting. On the one hand, the central bank implemented the basic, most anticipated scenario by maintaining all monetary policy parameters. On the other hand, the central bank sent quite unexpected signals by emphasizing not inflationary risks but the weakness of economic growth.
This outcome was surprising since, ahead of the March meeting, the market started to price in the likelihood of a more hawkish stance in the wake of the oil rally. Many analysts believed the central bank should adopt a wait-and-see stance while still allowing for an increase in interest rates.
However, the Bank of Canada did not confirm this scenario. The central bank focused on domestic economic weakness rather than external shocks. It also did not dramatize the risks of accelerating overall inflation, indicating that increases in energy prices are a temporary factor.
At the same time, the central bank stated that core inflation is demonstrating a steady slowdown, as evidenced by the February CPI growth report.
It is important to note that the core consumer price index is indeed showing a downward trend. In October and November of last year, this figure was at 2.9%, but starting in December, it has steadily decreased: to 2.8% in December, 2.6% in January, and down to 2.3% in February (the lowest level since March 2025). Overall inflation also slowed significantly last month to 1.8% (from 2.3%).
By focusing on the slowdown of the core CPI, the Bank of Canada also expressed concerns about the labor market, highlighting disappointing data released the week before last. As a reminder, according to the latest data, the Canadian economy lost 84,000 (!) jobs in February, while most experts expected a gain of 10,000. This is the weakest result since early 2022. The hardest-hit sectors were retail and wholesale trade (-18,000), construction (-12,000), and recreation. A positive dynamic was observed only in the public sector and logistics.
Moreover, the employment structure indicates that the number of full-time workers decreased by 108,000 in February, partially offset by an increase in part-time employment (+24,500). As is well known, full-time positions imply higher wages and social protection, which positively influence consumer activity among Canadians. Therefore, the figures mentioned above are exclusively negative in this context.
The unemployment rate in Canada rose to 6.7% (up from the previous 6.5%). The most affected group was youth (ages 16-24), whose unemployment rate jumped by 1.3 percentage points. The only component of the report that showed an upward trend was the "wage" figure. The average hourly wage increased by 3.9% (after rising 3.3% the previous month). However, here too, there are some "buts." The number of low-paid workers decreased in February, leading the average figure for the remaining "employed" to formally increase.
In other words, the recent macroeconomic reports on the labor market and inflation have been unequivocally negative. The Bank of Canada focused on these factors while downplaying inflation risks. For example, the phrase about "serious risks of accelerating price growth" disappeared from the accompanying statement. The market interpreted this circumstance as a signal for a potential interest rate cut in the coming months (possibly in June).
The US Federal Reserve, in turn, has declared a wait-and-see position—at least until inflation starts to decelerate on a sustainable basis. Jerome Powell explicitly stated this in response to a relevant question at the final press conference.
Thus, the divergence in monetary policies between the Fed and the Bank of Canada plays into the hands of USD/CAD buyers. Additionally, the US dollar is experiencing increased demand as a safe-haven asset. All this indicates a priority for long positions.
From a technical perspective, the USD/CAD pair is currently positioned at the upper line of the Bollinger Bands indicator and above all lines of the Ichimoku indicator (including above the Kumo cloud), which has formed a bullish "Parade of Lines" signal. A similar pattern has formed on the four-hour chart (but here the price is located between the middle and upper lines of the Bollinger Bands). It is reasonable to use corrective downward retracements to open long positions with a target of 1.3860 (the upper line of the Bollinger Bands on the H4 timeframe).