Canadian Dollar climbs to four-week high on soft US CPI, rising Oil prices

USD/CAD falls to its lowest level since June 17 as softer US inflation data weighs on the Greenback.
Rising Oil prices provide additional support to the commodity-linked Loonie.
Traders await Wednesday’s Bank of Canada interest rate decision and US PPI data.

Vishal Chaturvedi FXStreet

The Canadian Dollar (CAD) strengthens sharply against the US Dollar (USD) on Tuesday, drawing support from softer-than-expected US inflation data and rising Oil prices amid escalating tensions in the Middle East.

At the time of writing, USD/CAD trades around 1.4055, its lowest level since June 17, down nearly 0.70% on the day.

The US Dollar came under broad selling pressure after the latest Consumer Price Index (CPI) data showed inflation cooling more than expected. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 100.75, retreating from an intraday high of 101.32.

US CPI fell 0.4% MoM in June after rising 0.5% in May. Markets had expected a smaller decline of 0.1%. Annual inflation slowed sharply to 3.5% from 4.2%, below the 3.8% forecast.

Core CPI, which excludes volatile food and energy prices, was flat on a monthly basis, against expectations for a 0.2% increase. The annual core rate slowed to 2.6% from 2.9%, below the 2.8% forecast.

Traders quickly scaled back expectations of an imminent Federal Reserve (Fed) interest rate hike following the data. According to the CME FedWatch Tool, the probability of a July hike fell to 12% from 40% before the CPI release, while the odds of a September increase eased to 59% from 74%.

Canada is a major crude Oil exporter, and higher energy prices generally benefit the Canadian Dollar. West Texas Intermediate (WTI) trades around $78.00, up around 9% so far this week, as renewed hostilities between the US and Iran raise concerns over energy supplies through the Strait of Hormuz.

In a Truth Social post, US President Donald Trump said the Strait of Hormuz would remain open to all shipping except vessels travelling to and from Iranian ports. Trump also dropped the proposed 20% security fee, saying it would be replaced by trade and investment deals between Gulf states and the US.

Attention now turns to the Bank of Canada’s (BoC) monetary policy decision on Wednesday, with the central bank widely expected to leave its policy rate unchanged at 2.25%. In the US, traders await the Producer Price Index (PPI) data for more clues on inflation.

Economic Indicator

Producer Price Index (MoM)

The Producer Price Index released by the Bureau of Labor statistics, Department of Labor measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. Generally speaking, a high reading is seen as positive (or bullish) for the USD, whereas a low reading is seen as negative (or bearish).

GBP/USD holds above 1.3350 with the 200-day SMA capping gains

The British Pound appreciates against the US Dollar on Tuesday to trim previous losses and return to the 1.3375 area, aiming to retest resistance at the key 200-day Simple Moving Average. This is a popular indicator, which lies a few pips below 1.3400 and has been capping Pound’s recovery over the last two weeks.

EUR/USD surrenders some gains, back to 1.1440

EUR/USD now gives away part of the earlier advance and recedes toward thre 1.1440 zone on Tuesday. The pair’s firm uptick comes in response to the marked sell-off in the US Dollar, which has intensified after US inflation figures disappointed expectations in June and investors has assessed Chair Warsh’s testimony.

Gold battles to recover the $4,100 mark

Gold reverses the recent weakness and reclaims the area beyond the key $4,000 mark per troy ounce on Tuesday. The precious metal’s recovery picks up pace and approaches the $4,100 region following the Greenback’s decline and comments from the Fed’s Warsh.

Crypto Today: Bitcoin, Ethereum, XRP extend sideways trading amid ETF outflows, US-Iran war escalation

Bitcoin hovers around $62,500 amid prevalent sideways trading. Meanwhile, major altcoins such as Ethereum and Ripple are holding above crucial support levels at $1,700 and $1.05, respectively, reflecting ongoing consolidation across the crypto sector.

Fed Chair Warsh reaffirms they will deliver price stability

While testifying on the Semiannual Monetary Policy Report before the US House Financial Services Committee, Fed Chairman Kevin Warsh reiterated that the Fed is making a commitment on price stability and the goal of 2% inflation.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.