USD/CAD Shows Positive Movement Amid Economic Data
On Tuesday, USD/CAD experienced an upward trend as the gains in the US dollar balanced out with the support coming from rising oil prices in Canada. Currently, the pair is trading around 1.3715, marking its highest point since April 16th.
The dollar continued its gains following the release of unexpectedly high US inflation data. The Bureau of Labor Statistics reported that the Composite Consumer Price Index (CPI) increased by 0.6% from the previous month in April, slightly down from a 0.9% rise in March, aligning with what the market had anticipated. Year-on-year, the inflation rate ticked up to 3.8% from 3.3%, surpassing the forecast of 3.7%.
In contrast, the core CPI, which omits food and energy prices due to their volatility, rose by 0.4% month-on-month, an increase from 0.2% in March and above the expected 0.3%. The annual core inflation also saw a rise, climbing to 2.8% from 2.6% and beating expectations of 2.7%.
This data prompted an increase in U.S. Treasury yields and elevated the dollar index (DXY) to nearly 98.40, as traders speculated that the Federal Reserve might continue to raise borrowing rates through the end of the year. Currently, the likelihood of a rate hike in September is about 13.5%, with that percentage increasing to roughly 32% by December, according to the CME FedWatch tool.
Additionally, the stalemate in peace negotiations between the US and Iran, with no immediate resolution in sight, continues to bolster the US dollar. President Trump mentioned that the ceasefire is “on massive life support” during a press briefing.
That said, the gains in USD/CAD may be somewhat constrained due to higher oil prices providing a solid foundation for the Canadian dollar, particularly as disruptions persist in the Strait of Hormuz.
Looking forward, Canada’s economic calendar appears to be relatively light for the week, meaning USD/CAD will primarily rely on developments concerning the USD and oil market trends. There’s a strong expectation that market focus will remain on the ongoing discussions between the US and Iran.
In the US, attention will also be on upcoming producer price index (PPI) data slated for release on Wednesday, followed by retail sales figures on Thursday.
