The USD/CAD pair extended its decline to around 1.3920 during the early Asian session on Friday, pressured by persistent concerns over both the US and global economic outlook. The US Dollar (USD) struggled against the Canadian Dollar (CAD) as investors braced for key economic data later in the day, including the US March Producer Price Index (PPI) and advanced Michigan Consumer Sentiment.
US President Donald Trump’s decision to maintain a 10% blanket tariff on all imports and his announcement of a 90-day pause on new tariffs boosted investor sentiment toward Canada. During this period, the White House aims to negotiate higher tariffs, leading investors to reallocate capital back into the Canadian market, which supported the Loonie.
Further dampening the USD’s strength, US consumer prices unexpectedly fell in March. According to the US Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) inflation dropped to 2.4% year-over-year in March, down from 2.8% in February, and came in below the market consensus of 2.6%. Core CPI, which excludes volatile food and energy prices, increased by 2.8%, a decline from the previous 3.1%, and also missed the forecast of 3.0%. On a monthly basis, the headline CPI fell by 0.1%, while core CPI rose by 0.1%.
Following these inflation data releases, traders have raised expectations that the US Federal Reserve (Fed) will resume cutting interest rates in June, with the possibility of a full percentage point reduction by the end of the year.
However, a decline in crude oil prices could limit the Loonie’s gains, as Canada’s economy is heavily linked to oil exports. Lower oil prices tend to weigh on the CAD, as Canada is the largest oil exporter to the US, making the Loonie vulnerable to fluctuations in global commodity prices.
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