During the early European session on Monday, the USD/CAD pair continued its downward trajectory, reaching around 1.3605. This decline is attributed to the weakened US Dollar (USD) amidst expectations of a Federal Reserve (Fed) rate cut.
Investor focus now turns to the upcoming release of the Canadian Consumer Price Index (CPI) inflation data, anticipated to provide fresh impetus. Analysts predict a decrease to 2.8% year-on-year (YoY) in April from the previous reading of 2.9% YoY.
Market sentiment suggests that the Bank of Canada (BoC) could initiate rate cuts as early as June or July, preceding any action by the Fed. The outcome of Canada’s CPI inflation report, scheduled for Tuesday, is anticipated to offer insights into the upcoming rate decision. A decline in inflationary pressures may bolster the case for BoC rate cuts next month, with investors currently pricing in approximately a 40% likelihood of such a move.
Conversely, the US Federal Reserve is expected to maintain its interest rate stance until at least September, despite recent data indicating subdued US inflation. Cleveland Fed President Loretta Mester, known for her hawkish views, emphasized the appropriateness of the Fed’s current monetary policy stance, highlighting the ongoing evaluation of economic indicators. Additionally, Fed Governor Michelle Bowman expressed a willingness to raise rates should inflation stagnate or reverse. This cautious approach by Fed officials is poised to lend support to the USD.
As the markets eagerly await the release of key economic data and closely monitor central bank rhetoric, the USD/CAD pair may experience further pressure on the Loonie while its downside potential remains capped.
