The US Dollar came under pressure against the Canadian Dollar during Thursday’s early Asian session, sending the USD/CAD pair down toward 1.3975. The retreat follows weaker-than-expected US inflation data and growing anticipation ahead of key economic reports and remarks from Federal Reserve Chair Jerome Powell later in the day.
US Inflation Cools, Pressuring USD
Data released Tuesday by the US Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose by 2.3% year-over-year in April, down from 2.4% in March and below market expectations. This marks the slowest annual inflation rate in more than four years, reinforcing expectations that price pressures are moderating in the world’s largest economy.
The cooling inflation has weighed on the US Dollar, though hopes for a gradual economic recovery and signs of easing tensions between the US and China have helped temper fears of an imminent recession. These developments have prompted markets to revise their outlook on Federal Reserve policy.
According to LSEG data, traders now assign a 74% probability to a 25-basis-point interest rate cut by September—pushing back earlier expectations for a cut as soon as July. The shift in sentiment may lend limited support to the Greenback, depending on the tone of upcoming US data and Fed guidance.
Oil Price Decline Could Limit CAD Strength
While USD weakness is the primary driver behind the pair’s current dip, a slump in crude oil prices could act as a counterweight to Canadian Dollar strength. As the largest oil exporter to the US, Canada’s currency often tracks movements in energy markets. A continued decline in oil prices may cap further gains for the CAD and provide a potential floor for USD/CAD.
Traders are now focused on Thursday’s US Retail Sales and Producer Price Index (PPI) reports, as well as Fed Chair Jerome Powell’s speech, for fresh cues on the policy outlook and near-term direction of the USD/CAD pair.
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