The USD/CAD currency pair held its ground near 1.3665 during early Asian trading on Thursday, with the US Dollar facing pressure against the Canadian Dollar amid softer-than-expected US inflation data and growing market expectations of a Federal Reserve (Fed) rate cut in September.
Data from the US Bureau of Labor Statistics revealed that the Consumer Price Index (CPI) increased 2.4% year-over-year in May, slightly above April’s 2.3% but below the 2.5% consensus estimate. Core CPI, excluding food and energy prices, rose 2.8% annually, missing forecasts of 2.9%. On a monthly basis, both CPI and core CPI advanced by just 0.1%, falling short of analysts’ projections of 0.2% and 0.3%, respectively.
Fed Rate Cut Odds Surge
The weaker inflation prints triggered an immediate selloff in the US Dollar. Interest-rate swaps now price in a 75% probability that the Fed will reduce interest rates by September, reflecting increased caution among investors about the US economic outlook.
Crude Oil Rally Supports Canadian Dollar
Meanwhile, sustained gains in crude oil prices are providing additional support to the Canadian Dollar. Canada, being the largest oil exporter to the US, tends to see its currency strengthen in tandem with rising oil prices, which boost the country’s trade balance and economic prospects.
Market Focus Ahead
Attention will turn to the US Producer Price Index (PPI) release later Thursday, along with weekly Initial Jobless Claims data, which could offer further clues about inflationary pressures and labor market health.
