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• USD/CAD trades with caution around 1.3830 amid escalating US stagflation risks.
• Investors expect the Fed to cut interest rates in its policy meeting on Wednesday.
• The Canadian Dollar will be influenced by Canada’s CPI and the BoC’s monetary policy next week.

The USD/CAD pair trades cautiously near Thursday’s low around 1.3835 during the European trading session on Friday. The Loonie pair retraces from its recent highs of 1.3890 as the US Dollar (USD) faces selling pressure amid growing United States (US) stagflation risks.

The US economy is facing risks of stagflation amid weakening job growth and rising inflationary pressures. The Department of Labor showed on Thursday that individuals claiming jobless benefits for the first time in the week ending September 5 came in at 263K, the highest figure seen in four years.

In August, the headline Consumer Price Index (CPI) rose at a faster pace of 2.9% on an annualized basis, as expected, against 2.7% in July. Month-on-month headline CPI grew by 0.4%, faster than estimates of 0.3% and the prior reading of 0.2%.

Going forward, the Federal Reserve (Fed) is expected to perform a delicate balancing act in the policy meeting on Wednesday amid escalating US stagflation risks. Meanwhile, the Fed is certain to cut interest rates next week, according to the CME FedWatch tool.

In Canada, investors will focus on the CPI data for August and the Bank of Canada’s (BoC) monetary policy meeting, which are scheduled to next week.

USD/CAD continues to face pressure above the 200-day Exponential Moving Average (EMA), which trades around 1.3847.

The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating a sideways trend.

Going forward, the asset could slide towards the round level of 1.3600 and the June 16 low of 1.3540 if it breaks below the August 7 low of 1.3722.

On the flip side, a recovery move by the pair above the August 22 high of 1.3925 would open the door towards the May 15 high of 1.4000, followed by the April 9 low of 1.4075.

USD/CAD daily chart
 

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