The U.S. dollar (USD) remained relatively steady against the Canadian dollar (CAD) on Wednesday, sitting just below its four-week peak of 1.3724. This stability is attributed to strong consumer inflation data from the U.S. and rising Treasury yields, whereas increasing oil prices have helped keep the loonie from dropping further.
Recent data from the U.S. Consumer Price Index (CPI) for April highlighted the inflationary pressures stemming from conflicts in the Middle East. The annualized inflation rate surged to 3.8%, which is the highest it’s been in nearly three years—higher than the anticipated 3.7% and up from March’s 3.3%. Core CPI also exceeded predictions, rising to 2.8% over the last twelve months compared to 2.6% the previous month.
Expectations for Fed easing decline
These figures led many investors to reconsider their assumptions regarding further monetary easing from the Federal Reserve, even as the likelihood of interest rate increases has grown. According to CME Group’s Fed Watch tool, the probability of a quarter-point hike by December has risen to 30%, up from 21% just a week ago. This shift has encouraged an increase in U.S. Treasury yields, which are approaching their 2026 highs, contributing to the dollar’s upward momentum.
On the other hand, the Canadian dollar has found some support through rising oil prices, especially in light of the stalled peace talks involving the U.S. and Iran. Oil remains Canada’s primary export, and with a barrel of WTI crude priced at $97.00, this bolsters Canada’s trade revenues and supports the loonie.
The key focus for Wednesday is the release of the U.S. Producer Price Index (PPI) for April, which is also expected to show significant increases. However, attention is also drawn to U.S. President Donald Trump’s upcoming visit to China, where discussions with Chinese President Xi Jinping will cover various topics including the Iran conflict, Taiwan, and trade involving rare earth elements.
