• USD/CAD trades without a clear direction as US inflation data confirm a slow disinflation process.
• Expectations for Federal Reserve rate cuts ease after CPI data, modestly supporting the US Dollar.
• The Canadian Dollar draws support from higher Oil prices, limiting moves in the pair.

USD/CAD trades around 1.3880 on Tuesday at the time of writing, virtually unchanged on the day, amid mixed macroeconomic signals from the United States (US) and Canada-specific supportive factors.

The latest data released by the Bureau of Labor Statistics confirms that US inflation continues to cool at a gradual but still incomplete pace. The Consumer Price Index (CPI) rose 2.7% YoY in December, matching the previous month’s reading and market expectations. However, the core CPI, which excludes the volatile food and energy components, remained unchanged at 2.6% on an annual basis, falling short of expectations for a slight uptick. On a monthly basis, headline inflation increased by 0.3%, while core inflation rose by 0.2%, with shelter costs remaining the main driver of monthly price pressures.

These figures reinforce the view that the disinflation process is ongoing, strengthening expectations for a more gradual monetary easing from the Federal Reserve (Fed). Markets now assign nearly a 95% chance that the Fed will keep interest rates unchanged at its January meeting.

US labor market indicators are also sending mixed signals. Data from Automatic Data Processing (ADP) show that the four-week average of private-sector job gains edged up to 11,750 jobs per week in mid-December, from 11,000 previously. This suggests that job creation remains positive but modest, insufficient to fully dispel concerns about an economic slowdown.

On the Canadian side, the Canadian Dollar (CAD) finds support from higher Oil prices. As Canada is the largest Crude exporter to the United States, energy prices remain a key driver for the currency. West Texas Intermediate (WTI) US Oil prices extend gains for a fourth consecutive day, trading around $61 per barrel, supported by supply concerns, partly linked to rising geopolitical tensions involving Iran. Market participants are also awaiting the release of the American Petroleum Institute’s (API) weekly Crude Oil stockpiles report, due later in the day, which could further influence energy market sentiment.

In this environment, the balance between US inflation data that tempers expectations for rapid Fed easing and Oil-driven support for the CAD helps keep USD/CAD in a consolidation phase, in the absence of a strong near-term catalyst.