USD/CAD declines amid softer Canadian inflation, mixed US economic signals

• USD/CAD eases as markets digest mixed macro signals from both sides of the border.
• Softer Canadian inflation and declining Oil prices continue to weigh on the Canadian Dollar.
• A slight improvement in US ADP labor data and a less dovish Fed outlook help limit USD downside.

USD/CAD edges lower on Tuesday, trading around 1.4015, down 0.25% at the time of writing. The pair consolidates after hitting a one-week high, with mixed but generally supportive fundamentals keeping downside pressure contained.

The Canadian Dollar (CAD) remains weighed down by Monday's softer inflation reading. Canada's headline Consumer Price Index (CPI) eased to 2.2% YoY in October from 2.4%, only slightly above expectations but still consistent with cooling domestic price pressures. At the same time, the renewed decline in West Texas Intermediate (WTI) US Oil adds to CAD weakness. Oversupply concerns resurfaced as ING projected that the global Oil market could remain in surplus through 2026, while Goldman Sachs echoed that view, highlighting the risk of a persistent 2-million-barrel-a-day excess that may cap prices over the coming years.

On the US side, the US Dollar (USD) trades lower, as investors digest the latest economic signals following disruptions caused by the longest US government shutdown on record. New labor data released earlier in the day showed a slight improvement as the ADP Employment Change 4-week average came in at 2.5K decrease, compared with an 11.25K drop the previous week, hinting at stabilizing private-sector hiring despite broader signs of labor-market fatigue. This release helps refine near-term expectations ahead of the delayed Nonfarm Payrolls (NFP) report now scheduled for Thursday. Now traders await US Factory Orders due later in the day.

Despite this stabilization, market sentiment toward the USD remains cautious. The US shutdown continues to cloud visibility over economic momentum, limiting the appetite for directional positions. Moreover, recent comments from several policymakers at the Federal Reserve (Fed) point toward a more measured approach to easing, pushing back against expectations of aggressive rate cuts. Officials have warned that the trajectory of inflation and the potential impact of technological shifts, such as the adoption of artificial intelligence on employment demand, warrant caution before adjusting policy too quickly.