The USD/CAD pair remains under pressure around 1.4350 during the early Asian session on Wednesday, following disappointing US Producer Price Index (PPI) data for December. Market participants are now focused on the upcoming US Consumer Price Index (CPI) report later in the day, as well as speeches from Federal Reserve officials, including Thomas Barkin, Neel Kashkari, John Williams, and Austan Goolsbee.
Market Overview: Cooler US PPI Data Weakens USD Against CAD
The US Dollar (USD) weakened against the Canadian Dollar (CAD) after the December PPI data came in softer than expected. The Bureau of Labor Statistics reported that PPI for final demand rose 0.2% month-over-month in December, a slowdown from the 0.4% increase in November and below the 0.3% forecast. On an annual basis, PPI rose 3.3%, the most since February 2023, falling short of the expected 3.4% rise.
Despite the PPI miss, concerns over potential tariffs from President-elect Donald Trump’s incoming administration and expectations for fewer Fed rate cuts could push US Treasury yields higher, providing some support for the USD. “The risks are for fewer cuts, but continued progress on inflation may keep the Fed on track for a March rate cut,” noted Matthew Martin, senior US economist at Oxford Economics.
Commodity-Linked Loonie Supported by Rising Oil Prices
Meanwhile, a rise in crude oil prices, fueled by expanded US sanctions on Russian oil, has bolstered the commodity-linked Canadian Dollar (Loonie), providing further headwinds for the USD/CAD pair. As the largest oil exporter to the United States, Canada stands to benefit from higher crude prices, which tend to have a positive impact on the CAD’s value. This dynamic continues to exert pressure on the USD/CAD pair as it navigates between weak US data and the strong performance of oil prices.
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