Canadian Dollar dips to over one-week low vs. USD ahead of Canadian inflation data

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The USD/CAD pair builds on its recent bounce from the vicinity of the 1.3500 psychological mark and climbs to an over a one-week high during the Asian session on Tuesday.

USD/CAD struggles to capitalize on modest Asian session uptick to over a one-week high.
Dovish Fed expectations keep the USD bulls on the defensive and cap gains for the major.
Traders also seem reluctant and opt to wait for the Canadian consumer inflation figures.

The USD/CAD pair builds on its recent bounce from the vicinity of the 1.3500 psychological mark and climbs to an over a one-week high during the Asian session on Tuesday. Spot prices currently trade just below mid-1.3600s, though bulls seem hesitant and opt to wait for the release of the latest consumer inflation figures from Canada.

The headline Canadian Consumer Price Index (CPI) is expected to remain above the Bank of Canada's (BoC) target and hold steady at 2.4% YoY in January. The crucial data will influence expectations about the central bank's policy outlook, which, in turn, will play a key role in influencing the Canadian Dollar (CAD) and providing some impetus to the USD/CAD pair.

In the meantime, the BoC's neutral stance is largely offset by softer Crude Oil prices, which seem to undermine demand for the commodity-linked Loonie. The US Dollar (USD), on the other hand, preserves the previous day's modest gains and acts as a tailwind for the USD/CAD pair. The USD bulls, however, seem reluctant amid dovish Federal Reserve (Fed) expectations.

In fact, traders ramped up their bets that the US central bank will lower borrowing costs in June following the release of softer US consumer inflation figures last Friday. Furthermore, the current market pricing indicates the possibility of at least two 25-basis-point rate cuts by the Fed in 2026. This, along with threats to the Fed's independence, keeps a lid on the Greenback.

Adding to this, the underlying bullish sentiment contributes to capping the upside for the safe-haven buck ahead of the FOMC minutes, due on Wednesday. Apart from this, the US Personal Consumption Expenditure (PCE) Price Index on Friday would offer cues about the Fed's rate-cut path and drive the USD. This, in turn, warrants some caution for the USD/CAD bulls.

Economic Indicator

BoC Consumer Price Index Core (YoY)

The BoC Consumer Price Index Core, released by the Bank of Canada (BoC) on a monthly basis, represents changes in prices for Canadian consumers by comparing the cost of a fixed basket of goods and services. It is considered a measure of underlying inflation as it excludes eight of the most-volatile components: fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation and tobacco products. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.