During the Asian trading hours on Wednesday, the USD/CAD pair extended its losses for the second consecutive session, hovering around 1.3640. The decline in the pair is attributed to the weakened US Dollar (USD) as investors processed higher-than-anticipated US Producer Price Index (PPI) data for April while awaiting the Consumer Price Index (CPI) report scheduled for Wednesday.
According to the US Bureau of Labor Statistics (BLS), the Producer Price Index (PPI) rose by 0.5% month-over-month (MoM) in April, surpassing market expectations of a 0.3% increase. This rebound follows March’s contraction of 0.1%. Moreover, the Core PPI, which excludes volatile food and energy prices, also saw a notable increase of 0.5% MoM, exceeding projections of 0.2%.
Federal Reserve Chair Jerome Powell weighed in on the US PPI release, expressing anticipation of a continued decline in inflation and signaling less confidence in the disinflation outlook compared to previous assessments. Powell also noted an expected Gross Domestic Product (GDP) growth of 2% or higher, attributing this optimistic forecast to the strength of the labor market.
In contrast, the Royal Bank of Canada has adjusted its forecast for the USD/CAD pair to 1.3700 by the end of June 2024. This revision reflects the divergent trajectories of interest rates between Canada and the United States. The Bank of Canada (BoC) is expected to implement four consecutive rate cuts in 2024, with an additional reduction of 100 basis points (bps) in 2025, while hawkish comments from Federal Reserve officials suggest a commitment to maintaining higher rates for an extended period.
Furthermore, the rise in crude oil prices may bolster the Canadian Dollar (CAD), further weighing on the USD/CAD pair. Canada’s prominent role as the largest oil exporter to the United States and a significant oil consumer contributes to this dynamic.
West Texas Intermediate (WTI) crude oil prices retraced recent losses, trading around $78.30 per barrel during Wednesday’s Asian session. The uptick in crude oil prices is attributed to the latest crude oil supply update from the American Petroleum Institute (API) released on Tuesday. Concerns have also emerged due to wildfires approaching Fort McMurray, a crucial hub for Canada’s oil sands industry, responsible for approximately 3.3 million barrels per day, equivalent to two-thirds of the nation’s total output.
