USD/CAD Climbs After Canadian Inflation Data

The Canadian dollar dipped against its US counterpart after data revealed a steeper-than-expected decline in inflation. This has fueled speculation that the Bank of Canada may cut interest rates sooner than anticipated.

Canadian Inflation Cools, Rate Cut Speculation Heats Up

Canada’s Consumer Price Index (CPI) fell below the key 3% mark on an annual basis, with a monthly increase of only 0.3%, lower than the expected 0.6%. The BoC’s preferred inflation measure, the core CPI, also slowed down to 2.1% in February, compared to the previous reading at 2.4%.

This data benefited the USD/CAD pair which is 0.25 up, trading at 1.3567 as markets now believe the BoC might cut rates as early as June. According to financial data providers, the odds of a rate cut at the next BoC meeting stand at a significant 73%.

USD Supported by Resilient US Housing Market

Positive economic news from the US also contributed to the USD’s rise. Building permits and housing starts in February both surpassed expectations, indicating strength in the US housing sector. This bolstered the USD’s overall position.

Focus Shifts to FOMC Meeting

Market participants now turn their attention to the upcoming Federal Open Market Committee (FOMC) meeting on Wednesday. While futures data suggests the Fed will likely maintain current interest rates, the focus will be on the updated economic projections. Some analysts believe the Fed might remove a projected rate cut, keeping rates higher for a longer period, which could further impact the USD/CAD exchange rate.

Key Developments:
• Canadian inflation data showed a steeper-than-expected decline.
• This has increased speculation of an earlier Bank of Canada rate cut.
• Positive US housing data supported the US dollar.
• Markets await the outcome of the Fed meeting and its impact on the USD/CAD rate.