The USD/CAD currency pair continued its upward trajectory on Tuesday, hovering around 1.4195 during the late American session. This positive movement was driven by the hawkish remarks from Federal Reserve (Fed) officials, which provided robust support for the US Dollar (USD). Market participants are closely eyeing the upcoming release of the Federal Open Market Committee (FOMC) Minutes on Wednesday, anticipating insights that could influence the future trajectory of US interest rates.
On the other hand, data from Statistics Canada, also released on Tuesday, showed a modest increase in Canada’s Consumer Price Index (CPI) for January. The CPI rose by 1.9% year-over-year (YoY), up from 1.8% in December, aligning with analysts’ expectations. On a month-over-month (MoM) basis, the CPI increased by 0.1%, reversing the previous month’s decline of -0.4%.
Meanwhile, the Bank of Canada’s Core CPI, which excludes volatile items like food and energy, showed a more notable increase, climbing to 2.1% YoY in January from 1.8% in December. This uptick in inflation raised concerns about future monetary policy decisions by the Bank of Canada (BoC). In response to the data, market participants adjusted their expectations, reducing the likelihood of an interest rate cut by the BoC in March. Before the data was released, there was a 56% probability of a rate cut; however, after the CPI report, that probability dropped to nearly 63%, suggesting a greater likelihood of the BoC holding rates steady at its upcoming meeting.
On the USD front, hawkish comments from Federal Reserve officials continued to influence market sentiment. San Francisco Fed President Mary Daly highlighted that the outlook for further rate cuts in 2025 remains uncertain, despite the overall positive outlook for the US economy. Additionally, Philadelphia Fed President Patrick Harker voiced strong support for maintaining a steady interest rate policy, citing persistent inflation concerns as a key factor.
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With these statements, investors are on high alert, waiting for further guidance from Fed officials later in the week. Any additional hawkish remarks could strengthen the USD further, providing additional support to the currency pair in the short term.
In conclusion, the USD/CAD pair’s recent gains are underpinned by a combination of hawkish Fed signals and inflationary pressures in Canada. As the market waits for more clues from both central banks, the direction of the pair in the coming days will heavily depend on the outcomes of the FOMC Minutes and any further developments in inflationary data.
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