The Canadian Dollar (CAD) saw modest gains on Tuesday, supported by a dip in US Dollar demand following slower-than-expected U.S. Producer Price Index (PPI) inflation data for December. The news reignited market speculation that the U.S. Consumer Price Index (CPI) report due later this week may also come in below expectations, although a rise from previous periods is still anticipated.
Despite this, Canada’s economic data calendar remains light, with only lower-tier figures scheduled for release. The Bank of Canada (BoC) is widely expected to continue its policy of rate cuts, while the U.S. Federal Reserve (Fed) is projected to maintain rates through mid-2025. This expected rate differential is likely to further benefit the Canadian Dollar relative to the Greenback.
Market Overview: CAD Rises on U.S. Economic Data
The Canadian Dollar gained modestly on Tuesday, pushing the USD/CAD pair below the 1.400 mark. However, market flows remained one-sided, with the CAD lacking the intrinsic momentum to build on this move. The PPI inflation data for December showed a broader-than-expected slowdown, with the headline PPI rising by just 0.2% month-over-month, compared to the 0.3% anticipated and the prior 0.4%. Excluding volatile food and energy prices, the core PPI was flat in December, contrasting with forecasts of a 0.3% increase.
On an annual basis, headline PPI inflation rose to 3.3% year-over-year, up from the previous 3.0%, while core PPI increased to 3.5% from 3.4%.
Outlook: CAD Poised for Further Gains Amid Limited Momentum
The Canadian Dollar’s modest gain on Tuesday amounted to just 0.33%, as it continues to trade near multi-year lows against the U.S. Dollar. While there are efforts to push USD/CAD toward recent lows around 1.4300, the U.S. Dollar remains entrenched in a consolidation range near the 1.4400 mark. Despite a lack of momentum, market indicators suggest that CAD may continue to edge higher, benefiting from the growing interest rate differential between Canada and the U.S.
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