USD/CAD Reacts to BoC's Interest Rate Increase and Weaker CPI

USD/CAD finds itself on the back foot, hovering near the 1.3180 level following underwhelming US inflation data. As anticipated, the Bank of Canada (BoC) raised interest rates by 25 basis points (bps) to 5.0%. The latest US inflation figures further reinforced expectations of a final rate hike by the Federal Reserve at their July policy meeting.

In response to the release of the US Consumer Price Index (CPI) data and the BoC's policy decision on Wednesday, the USD/CAD pair extended its downward trajectory, remaining under pressure as it currently trades in the early Asian session around 1.3180.

During the July policy meeting, the BoC, in line with market predictions, raised the benchmark interest rate to 5%. BoC Governor Tiff Macklem provided insights into the future policy outlook, emphasizing the necessity of higher interest rates to curb demand growth and ease price pressures. Furthermore, he indicated the likelihood of additional rate hikes.

The BoC's decision came on the heels of the June US inflation data, where the Consumer Price Index showed a decline from the previous month to 3% YoY. Similarly, the core CPI also dipped to 4.8% YoY, falling short of market expectations of 5.3%. Consequently, the US Dollar faced selling pressure, tumbling to its lowest level since April 2022, around 101.50. These inflation figures solidified the belief that the Federal Reserve would maintain interest rates following the 25 bps increase anticipated at the July 25-26 policy meeting.

Looking ahead, market participants will closely monitor the release of the US Producer Price Index (PPI) for June and Unemployment Claims during the early North American session on Thursday. These data points hold the potential to provide fresh impetus and create trading opportunities within the USD/CAD pair.


Pivot Point: 1.3200

Our preferred Scenario

Short positions below 1.3200 with targets at 1.3140 & 1.3120 in extension.