During the early European session on Tuesday, the USD/CAD pair has sustained its upward trajectory for the second consecutive day, hovering around 1.3630. Market participants are keenly awaiting remarks from additional FOMC members, while also keeping a close eye on the forthcoming Canadian CPI inflation report for April.
Expectations are rife in the markets for a further moderation in CPI inflation figures, both on an annual and monthly basis. Such a scenario is anticipated to sway the Bank of Canada (BOC) towards considering interest rate cuts in the upcoming month. Market sentiment suggests that the BOC might opt for 2-3 interest rate cuts prior to the Fed‘s initiation of any easing measures, a prospect likely to exert downward pressure on the Loonie and consequently provide tailwinds for the USD/CAD pair. Forecasts indicate a potential decline in Canada’s CPI inflation to 2.7% YoY in April from the previous reading of 2.9%, with the monthly CPI inflation expected to decrease to 0.5% MoM from 0.6% in March.
Concurrently, the recent downturn in crude oil prices has added to the selling pressure on the commodity-linked Canadian Dollar (CAD). Given Canada’s status as a prominent exporter of oil to the United States, any fluctuations in crude oil prices tend to have a notable impact on the CAD.
In contrast, officials from the US Federal Reserve (Fed) have adopted a cautious stance regarding the timing of potential easing measures, emphasizing the necessity of maintaining higher interest rates for extended durations to ensure that inflation aligns with its objectives. Such cautious rhetoric from the Fed may bolster the Greenback and limit the downside potential of the USD/CAD pair in the near term.
