The USD/CAD pair has drifted lower to 1.3640 in Wednesday’s early European session. This movement comes in response to the annual Canadian CPI inflation rate slowing to 2.7% in April from 2.9% prior. This decrease has increased the likelihood of a rate cut by the Bank of Canada (BoC) in June. Despite this data, the US Dollar (USD) consolidation has kept the pair on a downward trend.
Inflation in Canada cooled to 2.7% in April as food prices growth slowed, according to Statistics Canada. The Consumer Price Index (CPI) inflation dropped to 2.7% year over year in April, in line with market estimates. On a monthly basis, headline CPI inflation eased to 0.5% month over month in April. The BoC’s core CPI also saw a decrease, rising only 1.6% year over year in April compared to a 2% increase in March. This data has led to speculation that the BoC may announce rate cuts in their upcoming June meeting.
Following the release of the inflation data, traders have increased their bets for a rate cut to nearly 55% from 39%. The potential for interest rate cuts from both the BoC and the US Federal Reserve could put downward pressure on the Canadian Dollar (CAD) and support the USD/CAD exchange rate. Investors are eagerly awaiting the FOMC Minutes and a speech from a Federal Reserve official to gain further insights into the future steps of the central bank.
Federal Reserve officials remain cautious and prefer to wait for more encouraging data before making any significant policy changes. They want to ensure that inflation remains on track towards the Fed’s 2% target. Atlanta Federal Reserve President Raphael Bostic highlighted the importance of being cautious about the timing of rate moves to prevent inflation from becoming unstable.
The recent slowdown in Canadian inflation rates has had a notable impact on the USD/CAD exchange rate. The possibility of rate cuts from both the BoC and the Fed has created a sense of uncertainty in the market, leading to a depreciation of the Canadian Dollar and strengthening of the US Dollar. Traders will continue to monitor economic data releases and central bank announcements for further clues about the future direction of the USD/CAD pair.