The USD/CAD currency pair climbed 0.2% to trade near 1.3772 during the European session on Wednesday, reflecting strength in the US Dollar as the Canadian Dollar underperformed its peers. This move comes amid easing expectations that the Bank of Canada (BoC) will raise interest rates in its July policy meeting, following the latest Canadian Consumer Price Index (CPI) data for April. The CPI showed headline inflation rising at a slower-than-expected pace of 2.8% year-on-year, compared to the anticipated 3.1% [1].
According to Deutsche Bank, the implied probability of a July rate hike by the BoC has dropped to 24% after the inflation data release [1]. The Canadian Dollar was the weakest against the Australian Dollar among major currencies, as shown in the provided heat map [1]. Meanwhile, the US Dollar continued to outperform, supported by expectations that the Federal Reserve may hike interest rates this year. The US Dollar Index (DXY) traded marginally higher near 99.35, though it had given back most of its early gains [1].
Technical analysis indicates that USD/CAD is trading above the 20-period exponential moving average at 1.3708, suggesting a mildly bullish near-term bias. The Relative Strength Index (RSI) stands at around 61, indicating buyers retain the upper hand, though the pair faces nearby Fibonacci resistance levels [1].
Investors are also awaiting the release of the Federal Open Market Committee (FOMC) minutes from the April policy meeting, scheduled for later in the day at 18:00 GMT, which could provide further direction for the currency pair [1].
CONCLUSION
USD/CAD has strengthened as Canadian inflation data dampened expectations for a near-term BoC rate hike, while the US Dollar remains supported by potential Fed tightening. Market participants are watching for further cues from the upcoming FOMC minutes, with technical indicators suggesting a mildly bullish outlook for the pair.