Recent developments in the foreign exchange market indicate that traders are linking the fate of the Canadian dollar to that of the US dollar, believing that the expected boost to the US economy can boost Canada's economy. Therefore, the Canadian dollar is like a proxy for the US dollar, benefiting as the US dollar rises.

We believe that the Canadian dollar is performing well, especially if it is affected by the acceleration of US economic growth, "said a report from JPMorgan's foreign exchange trading department

The recent trend of the Canadian dollar appears to be closely related to the US dollar, and the continuation of the US dollar's upward trend may benefit the Canadian dollar.

However, Valentin Marinov, the head of G10 foreign exchange strategy at the French Agricultural Credit Bank, said, "We can conclude that many positive factors related to Trump have already been reflected in the US dollar price. We will now be wary of Trump elaborating on his policies in more detail, which we believe may be the next catalyst for global foreign exchange. Before that, we may see some wait-and-see price movements involving the recent strong pullback of the US dollar

A report from the Chief Investment Office of UBS states that the strength of the US dollar is limited.

The October CPI data for Canada is the market focus on Tuesday, and any unforeseen strength can help the Canadian dollar find its own momentum.

Analysts from Imperial Bank of Canada believe that Canada's inflation risk is a downside risk, and if this risk becomes a reality, it could lead to a weakening of the Canadian dollar.

The Imperial Bank of Canada predicts that the non seasonally adjusted CPI rate for October in Canada will be 0.2%, lower than the expected value of 0.3%; Canada's October core CPI weighted median annual rate and October core CPI truncated adjusted annual rate were 2.4%, in line with expectations; The monthly core CPI rate for October, after quarterly adjustment, is 0.2%.

The bank stated that these readings will roughly align with the average level of the past three months and highlight the easing of inflation risks in Canada.

Noah Buffam, an analyst at Imperial Bank of Canada, said, "As we enter 2025, we expect the downside risk of inflation in Canada to increase." Noah Buffam also said, "We still hold a dovish view of the Bank of Canada and expect interest rates to be lowered to 2.25%

Last Friday's employment data in Canada sent a complex signal, with the decline in employment numbers exceeding expectations, but the unemployment rate remained unchanged at 6.5%, which did not match the expected decline. Overall, the market's response to these data is bearish for the Canadian dollar, as the acceleration of building permit growth rate in September exceeded expectations and did not bring comfort to the Canadian dollar.

If the October CPI data in Canada shows an increase in inflationary pressure, it may mean that inflationary pressure in the Canadian economy has become more resilient. This data release may provide some support for the Canadian dollar, as the dovish stance of the Bank of Canada may ease.

At present, the market expects the bank to cut interest rates by 25 basis points, or possibly 50 basis points, at the December meeting, so the Bank of Canada's intention is to put pressure on the Canadian dollar at the monetary level.

On a more fundamental level, investors need to pay attention to the trend of oil prices, considering Canada's position as a major oil producing country. If oil prices fall, the Canadian dollar may also further decline.

Daily chart of USD/CAD exchange rate