During the early European session on Monday, the USD/CAD pair displayed a resurgence, edging closer to the 1.3680 mark. Concurrently, the USD Index (DXY) maintained its positive stance around 105.30, setting the stage for a pivotal week ahead with crucial US economic data on the horizon.
Of paramount significance is the impending release of the final reading of the US Consumer Price Index (CPI) scheduled for Wednesday. Forecasts anticipate a 3.4% year-on-year uptick in April, slightly down from the 3.5% annual surge witnessed in March.
Federal Reserve (Fed) officials remain vigilant, emphasizing the necessity for empirical evidence signaling a downturn in inflation before contemplating any reduction in the fed funds rate from its 23-year pinnacle. Lorie Logan, President of the Dallas Fed, articulated the ambiguity surrounding whether current monetary policy is sufficiently stringent to curtail inflation to the desired 2% threshold, underscoring that it’s premature to advocate for interest rate cuts.
Echoing this sentiment, San Francisco Fed President Mary Daly underscored the imperative of sustained restrictive measures to align with the Fed’s inflation objectives. Minneapolis Fed President Neel Kashkari echoed a cautious stance, adopting a “wait-and-see mode,” emphasizing the formidable threshold required to justify escalated rates to temper inflation. This cautious approach from Fed officials bolsters the Greenback, serving as a catalyst for the USD/CAD pair.
In contrast, the Canadian economy demonstrated resilience with the addition of 90,000 jobs in April, marking the most substantial surge in 15 months and surpassing estimations of a 20,000 increase, according to Statistics Canada. Moreover, the Unemployment Rate remained stable at 6.1% in April. This robust performance in the labor market affords the Bank of Canada (BoC) additional leeway to assess the sustainability of inflationary pressures.
Nevertheless, the Loonie faces headwinds as crude oil prices decline, exerting downward pressure, given Canada’s status as a primary oil exporter to the United States.
