- USD/CAD is little changed at 1.3700 following the release of the US CPI report for July.
- Inflation data showed that price pressures eased year-on-year, as expected.
- The BoC is expected to cut interest rates for the third consecutive time.
The USD/CAD pair is fluctuating near the round support level of 1.3700 in the New York session on Wednesday. The loonie value is little changed following the release of the US Consumer Price Index (CPI) report, which showed that price pressures eased in July, as expected.
The consumer price index (CPI) showed that annual headline and core inflation, which excludes volatile items such as food and energy, fell by a tenth to 2.9% and 3.2% respectively. Monthly headline and core inflation rose 0.2%.
An expected decline in US inflation has provided a cushion for the US dollar (USD), which was on track to revisit its seven-month low. The US dollar index (DXY), which tracks the greenback’s value against six major currencies, is finding support after recording an intraday low of 102.36.
The inflation report has boosted confidence that price pressures are on track to rise back to the desired 2% level. However, expectations that the Federal Reserve (Fed) could announce a significant rate cut have diminished. The CME FedWatch tool shows that the probability of a 50 basis point (bp) rate cut has fallen from 54.5% to 41.5% following the release of the July inflation report.
Meanwhile, the Canadian dollar (CAD) faced mild selling pressure as oil prices gradually corrected after a one-sided rally. Oil prices have fallen as investors await new developments in the conflicts between Iran and Israel in the Middle East. It is worth noting that Canada is the leading oil exporter to the US and the lower prices of the black gold are weighing on the Canadian dollar.
This week, the Loonie is being guided mainly by market speculation about interest rate cuts by the Bank of Canada (BoC) in the absence of high-level economic data. Investors expect that the BoC may extend its cycle of monetary easing in September to prevent further deterioration in the labor market.
Economic indicator
Consumer price index excluding food and energy (year-on-year comparison)
Inflationary or deflationary tendencies are measured by regularly adding up the prices of a basket of representative goods and services and presenting the data as a consumer price index (CPI). CPI data is compiled monthly and published by the U.S. Department of Labor Statistics. The YoY value compares the prices of goods in the reference month with those of the same month last year. The CPI excluding food and energy excludes the so-called more volatile food and energy components in order to measure price pressures more accurately. In general, a high value is an uptrend for the U.S. dollar (USD), while a low value is considered a downtrend.
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