Weaker Canadian inflation data fuels expectations of Bank of Canada rate cuts, lifting USD/CAD above key levels.
USD/CAD climbed after Canada’s softer Consumer Price Index (CPI) data reinforced expectations of monetary policy divergence between the Bank of Canada and the Federal Reserve. The weaker inflation print increased bets on earlier rate cuts in Canada, contrasting with a more hawkish US outlook.
Prior to the release, USD/CAD traded near 1.39, with strategists noting broad USD strength could cap downside below 1.40. While higher oil prices may support the Canadian dollar against other currencies, the rate differential remains the dominant driver versus the US dollar.
Markets are now pricing in a higher probability of a Bank of Canada rate cut in the coming months, while Fed policy is expected to remain restrictive for longer.