Canadian Dollar holds near monthly highs with Inflation data in the spotlight

• USD/CAD holds losses near 1.4000 following a 1.25% decline over the last two weeks.
• The Canadian Dollar has been boosted by a more than 20% rally in Oil prices.
• US Dollar bulls remain subdued amid dwindling hopes of immediate Fed rate hikes.

The Canadian Dollar (CAD) holds gains near one-month highs against the US Dollar (USD) on Monday. The USD/CAD consolidates losses near 1.4000 after dropping about 1.25% over the last two weeks, with the Canadian Dollar buoyed by the rally in oil prices, while the focus on Monday shifts to the release of Canadian Consumer Price Index (CPI) figures.

Canadian inflation is expected to have eased to a 2.9% year-on-year growth rate in June, down from a nearly one-and-a-half-year high of 3.2% in May. Monthly inflation is expected to have contracted 0.2%, after a 1% increase in the previous month. These data ease pressure on the Bank of Canada to tighten its monetary policy and could negatively impact the Loonie, slthough thery predate a 20% rally in Oil prices in July, which might cushion the market reaction.

The Oil rally is actually a key reason for the last two weeks’ appreciation of the Canadian Dollar. Oil is Canada’s main export, and has rallied more than 20% since the US and Iran resumed their hostilities and Tehran blocked the Strait of Hormuz again, which will provide a significant boost for Canada’s trade revenues.

The US Dollar, on the contrary, remained on the back foot last week as the soft US consumer and producer prices dampened hopes of a Federal Reserve (Fed ) rate hike in the coming months. Bets of a July rate hike dropped to 12% from nearly 42% one week before, and the odds for a September hike eased to 57% from approximately 75%, according to data by the CME’s FedWatch Tool.