Weaker Canadian inflation data fuels bets on BoC rate cuts while Fed hike expectations lift the USD, pressuring the CAD.
The USD/CAD pair climbed to a one-week high near 1.4085 in Asian trading, extending gains for a second session. The move follows softer-than-expected Canadian inflation data, which reinforced expectations that the Bank of Canada will hold rates steady through 2026.
Canada’s annual inflation rate slowed to 2.8% in June from 3.2% in May, while core CPI measures fell below the BoC’s 2% target for the first time in nearly six years. In contrast, markets are pricing in at least one Fed rate hike this year amid persistent U.S. economic strength.
Rising U.S.-Canada trade tensions, including a proposed 50% tariff on Canadian goods, further weighed on the CAD. Elevated crude oil prices provided limited support to the commodity-linked currency.