The Canadian Dollar (CAD) weakened against the US Dollar (USD), with the USD/CAD pair rising to near 1.3765 during the early European session on Thursday, following the release of softer-than-expected Canadian inflation data and a decline in crude oil prices [1]. Canada's Consumer Price Index (CPI) inflation increased to 2.8% year-over-year in April from 2.4% in March, marking the highest level in two years, primarily due to a surge in gasoline prices after the Iran war pushed global crude oil prices higher [1]. However, the April CPI figure came in below market expectations of 3.1%, which contributed to the CAD's weakness against the Greenback [1].
The decline in crude oil prices further pressured the CAD, as optimism over a possible US-Iran agreement raised hopes that crude supplies would soon resume flowing out of the Strait of Hormuz, potentially increasing global oil supply and lowering prices [1]. As Canada is a major oil exporter, lower crude oil prices generally have a negative impact on the CAD [1].
Additionally, the minutes from the April Federal Open Market Committee (FOMC) meeting, released on Wednesday, indicated that a majority of Federal Reserve officials warned the central bank may need to consider hiking interest rates if inflation remains persistently above their 2% target [1]. The hawkish tone from the Fed, combined with concerns about inflationary pressures driven by the Iran war, supported the USD against the CAD [1].
Traders are also awaiting the preliminary readings of the US Purchasing Managers Index (PMI) for May, which could further influence the USD/CAD pair later in the day [1].
CONCLUSION
The Canadian Dollar came under pressure as April CPI data missed expectations and crude oil prices declined, both weighing on the commodity-linked currency. The hawkish stance from the US Federal Reserve and potential developments in US-Iran relations further supported the USD against the CAD. Market participants are closely watching upcoming US economic data for additional direction.