US Inflation Fears Weigh on Canadian Dollar

The Canadian Dollar (CAD) is taking a step back against the US Dollar (USD) as markets grow cautious ahead of a crucial US inflation report. With a light economic calendar on the Canadian side, the Greenback is in the driver’s seat, fueled by market anticipation and a general move toward safe-haven assets.

The retreat in the Canadian Dollar follows a disappointing US jobs report earlier this month, which had spurred bets for a Federal Reserve (Fed) rate cut in September. However, with the July Consumer Price Index (CPI) inflation data due on Tuesday, investors are now questioning whether these rate cut hopes are premature. Forecasters are expecting both headline and core CPI to tick higher, a development that could make it difficult for the Fed to justify an imminent rate cut, even with signs of weakness in the labor market.

Technically, this renewed strength in the US Dollar is helping the USD/CAD pair rebound toward the 1.3800 mark, pulling it up from a key technical support level. The pair remains within its recent range, but a stronger-than-expected inflation reading could provide the momentum for the US Dollar to challenge its next resistance level.