- The Canadian dollar lost earlier gains, with USD/CAD rising to 1.3800 during the early US sessions.
- The US dollar is making a slight recovery in light of the Trump-Zelensky meeting and an upcoming week packed with data, including the Federal Reserve Minutes and Jackson Hole discussions.
- Traders seem cautious ahead of Tuesday’s Canadian CPI report, which could shape the Bank of Canada’s future policy decisions.
On Monday, the Canadian Dollar (CAD) gave up all in-day gains against the US Dollar (USD). The greenback is showing some modest recovery ahead of the meeting between Trump and Zelensky. Market participants are likely to be cautious about making bold moves before the release of the July Consumer Price Index (CPI) set for Tuesday, which could provide insights into the Bank of Canada’s (BOC) policy direction.
As of now, the USD/CAD pairing had edged up, pulling back from a low of 1.3783 and recovering to the 1.3800 mark during early American trading.
This uptick corresponds with a mild rebound in the US Dollar Index (DXY), which measures the dollar’s performance against six major currencies. The index is influenced by expectations of aggressive monetary policy adjustments from the Federal Reserve, although the latest US economic data presents mixed signals.
The market still sees a high probability of a 25 basis point rate cut at the Fed’s upcoming September meeting, although these odds have slightly decreased. The CME FedWatch tool indicates that the chances of a cut stand at around 84%, down from nearly full pricing last week. Traders are also focusing on the Fed’s July meeting minutes, set to be released on Wednesday, and a speech by Chairman Jerome Powell on Friday, which is expected to provide new policy insights during the Jackson Hole Symposium.
Meanwhile, in Canada, Statistics Canada is set to unveil July’s inflation data on Tuesday, including key core measures prioritized by the BOC. The headline CPI is anticipated to rise by 0.4% monthly, up from 0.1% in June, though the annual rate is expected to ease from 1.9% to 1.7%, reflecting ongoing trends at the headline level.
On the other hand, underlying price pressures remain firm. The BOC core CPI is projected to increase by 0.4% month-on-month, accelerating from June’s 0.1%, but is expected to hold steady at 2.7% year-on-year. The broader core CPI is also expected to rise by 0.3%, indicating persistent inflation challenges despite a potential decline in the headline figure.
The forthcoming data could send mixed signals to the Bank of Canada, which tightened rates to 2.75% in July. If the headline CPI comes in weaker than expected, speculation about rate cuts later this year could resurface. However, persistent core inflation may limit the BOC’s flexibility, leading policymakers to proceed with caution and rely heavily on data for decision-making.
