The USD/CAD pair has been trading within a clearly defined upward trend for five consecutive weeks. Key drivers include the dovish stance of the Bank of Canada, softness in the oil market, decelerating inflation, and a mixed labor market landscape in Canada.

The start of the pair's current upward momentum can be traced back to the Bank of Canada's September meeting, where the central bank cut the interest rate by 25 basis points. Policymakers expressed concern over the slowing economy: GDP decreased by 1.6% year-over-year (vs. a forecasted 0.6% contraction). This marks the weakest reading in four years, since Q2 2021, when Canada's economy shrank by 3.2%. Multiple macroeconomic indicators demonstrated negative dynamics. For example, exports dropped by 7.5%—the steepest decline in five years—while business investment fell by 0.6%, the worst result since 2020. Output also declined in many goods-producing sectors.

Labor market figures tell a contradictory story. A jobs report released two weeks ago appeared strong, but Bank of Canada Governor Tiff Macklem still characterized the labor market as "weak." According to published data, employment increased by 60,000 in September, with the unemployment rate steady at 7.1% (vs. expectations of an increase to 7.2%). Notably, the employment gain was driven entirely by full-time jobs, while part-time employment dropped by 45,000.

Governor Macklem explained that the September employment growth only partially offset earlier job losses totaling over 100,000 across the prior two months. He also noted that the unemployment rate has risen from 6.6% at the start of the year to 7.1%. Furthermore, negative trends are emerging: for instance, job seekers with higher education (bachelor's degree or above) are struggling, with about five unemployed individuals per job opening.

In other words, despite a seemingly solid September report, the labor market did not support the Canadian dollar (the "loonie"). Macklem's pessimistic remarks have prompted speculation that the central bank may lower rates again at its upcoming meeting on October 29.

The final missing piece remains inflation. Canada's previous CPI report (August) came in weaker than expected, with the monthly headline inflation rate falling into negative territory for the first time since April (-0.1% m/m vs. forecast +0.2%). On a year-over-year basis, CPI rose to 1.9% (vs. forecast 2.0%).

Tuesday, October 21, Canada's September CPI data will be released. According to preliminary forecasts, the headline consumer price index is expected to remain negative month-over-month at -0.1%. On an annual basis, CPI is projected to return to July levels at 1.7%. Core CPI is likely to remain flat m/m—just as it was in August—and slow to 2.5% y/y after holding steady at 2.6% for two consecutive months.

If the report meets or falls short of forecasts (land in the "red zone"), the Canadian dollar will likely face increased pressure due to rising dovish expectations.

According to economists at RBC (Royal Bank of Canada), the Bank of Canada could cut rates not only in October but again in December—totaling a 50-basis-point reduction by year-end. Meanwhile, Capital Economics forecasts just one 25-basis-point cut at one of the two remaining meetings this year.

Overall, there is no consensus in the market regarding the pace at which the Bank of Canada will ease monetary policy. Uncertainty remains, which means the report could trigger notable volatility in USD/CAD—especially if the figures disappoint. In that case, the northern trend may resume with renewed strength.

From a technical perspective, the pair remains within a clearly defined uptrend. On the daily chart, price is situated between the middle and upper bands of the Bollinger Bands indicator and above all lines of the Ichimoku indicator, which has generated a bullish "Parade of Lines" signal. All these signals point to a preference for long positions.

The first—and currently only—target for the northern movement is 1.4090, which corresponds to the upper band of the Bollinger Bands indicator on the D1 timeframe.