The USD/CAD pair remains stable near 1.3955 in early Wednesday trading, as investors await the Bank of Canada’s (BoC) latest interest rate decision. While the central bank is widely expected to leave rates unchanged, dovish market sentiment could limit gains for the Canadian Dollar (CAD).
Canadian Inflation Softens, Reinforcing Rate Cut Expectations
Recent data from Statistics Canada has added weight to expectations of further monetary easing. Canada’s Consumer Price Index (CPI) inflation eased more than anticipated in March, falling to 2.3% year-over-year from 2.6% in February. This was below the forecasted 2.6% reading. On a monthly basis, CPI rose by just 0.3%, well below February’s 1.1% increase and also softer than the 0.7% projection.
The cooling inflation figures have reinforced market expectations that the BoC will likely resume its rate-cutting cycle later this year. While a majority of investors (57%) expect the central bank to maintain its benchmark rate at 2.75% during today’s meeting, markets are pricing in two additional rate cuts by the end of 2025, with easing expected to resume in June, according to a Reuters poll.
US Dollar Gains Ground on Trade Policy Developments
Meanwhile, the US Dollar has found some footing following comments from former President Donald Trump, who on Monday signaled a potential modification to existing 25% tariffs on imported autos and auto parts from Canada, Mexico, and other nations. Reports that key technology goods may be exempted from reciprocal tariffs have also helped ease fears of a near-term US recession.
These developments, coupled with a broader sense of resilience in the US economy, could lend additional support to the Greenback in the short term, helping to keep the USD/CAD pair buoyed.
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