Societe Generale strategists note that lower June inflation in Canada halted the Canadian dollar’s (CAD) rebound from 1.4250 to 1.40 against the U.S. dollar (USD). The failure to recover the 50-day moving average around 1.3991 and up-to-date U.S. tariffs on Canadian goods complicate mean reversion. Technical levels at 1.3970 and 1.3870/1.3850 define the decline, with interim resistance at 1.4150/1.4175.

Tariffs Affect Canadian Dollar Prospects

“The headline CPI fell to 2.8% year-on-year in June, with the core rate falling to 1.8%, the lowest level since December 20. For the BoC, this will ensure that spillovers to supply chains and non-energy goods derived from energy are limited. Last week, the bank estimated that CPI inflation would remain elevated in June and then gradually decline over the coming months, returning to around 2% in early 2027.”

“In Canada, the following inflation data for June will reinforce the BoC status quo and halt the (temporary) CAD rebound from 1.4250 to 1.40/USD.”

“The interest rate is assessed to be appropriate. Money markets are currently pricing in just 18bp of tightening over six months, in line with the RBA, but well below the ECB (+45bp), Fed (+42bp) and BoE (+41bp).”

“Technically speaking, the failure to regain the 50dma at 1.3991 does not necessarily mean the end of the mean reversion since late June, but it does raise the bar, especially after the US imposed new 50% tariffs on $20 billion worth of Canadian goods. The 2-year UST/GCAN spread widened again by 6 bp to 136 bp, after previously tightening from 142 bp.”

“Technically, breaking above 1.3970 would open up a return to the May lows around 1.3870/1.3850. Last week’s high at 1.4150/1.4175 is temporary resistance.”

(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor. Find out more.)