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Canadian Dollar dips as softer Oil, robust US inflation weigh on CAD

  • USD/CAD rises on Friday and trades around 1.3990, up 0.16% on the day at the time of writing.
  • Stronger-than-expected US producer inflation reinforces expectations of a longer-lasting restrictive monetary policy stance.
  • The Canadian Dollar remains under pressure due to lower Oil prices and the Bank of Canada's cautious tone.

USD/CAD trades higher around 1.3990 on Friday, with the US Dollar (USD) benefiting from stronger-than-expected inflation data in the United States (US), while the Canadian Dollar (CAD) remains weighed down by falling Oil prices and a Bank of Canada (BoC) that is showing little urgency to raise rates further.

Thursday’s Producer Price Index (PPI) report showed that US inflation accelerated in May. The annual figure rose to 6.5%, marking its fastest pace since November 2022, while the monthly increase of 1.1% exceeded market expectations. The data reinforced expectations that the Federal Reserve (Fed) could keep monetary policy restrictive for longer. John Ryding, Chief Economic Advisor at Brean Capital, said the report strengthens the case for those Federal Open Market Committee (FOMC) members who believe another rate hike may be needed later this year.

The US Dollar is also drawing support from an ongoing backdrop of geopolitical uncertainty. Although US President Donald Trump stated that a peace agreement with Iran could be signed as soon as this weekend, Iranian officials indicated that no final decision has yet been reached. Tensions remain elevated in the Middle East after US forces intercepted Iranian drones near the Strait of Hormuz, while the Islamic Revolutionary Guard Corps reiterated its readiness to respond to any aggression.

On the Canadian side, the BoC left its policy rate unchanged at 2.25% at its June meeting. The central bank noted that there is still limited evidence that higher energy prices are feeding through broadly into inflation. However, BoC Governor Tiff Macklem reiterated that policymakers would not hesitate to raise rates if necessary to keep inflation under control.

Comments from BBH analysts suggest that markets may be overestimating the extent of future tightening from the Bank of Canada. According to the bank, the central bank’s cautious stance could support a gradual extension of USD/CAD gains in the coming months.

Meanwhile, lower Oil prices continue to weigh on the Loonie. Hopes for an agreement between Washington and Tehran have fueled expectations of a normalization in global energy flows, putting downward pressure on Crude prices. As the Canadian Dollar is closely linked to the country’s energy exports, weaker Oil prices continue to provide support for USD/CAD.

Investors will now focus on the preliminary University of Michigan Consumer Sentiment Index for June, due later on Friday. The release could influence expectations regarding the Fed’s policy outlook and the near-term direction of the US Dollar.

Canadian Dollar Price Today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD0.12%0.15%0.19%0.13%0.17%0.24%0.28%
EUR-0.12%0.02%0.07%0.02%0.07%0.12%0.15%
GBP-0.15%-0.02%0.04%-0.00%0.02%0.10%0.14%
JPY-0.19%-0.07%-0.04%-0.08%-0.04%0.04%0.06%
CAD-0.13%-0.02%0.00%0.08%0.04%0.10%0.14%
AUD-0.17%-0.07%-0.02%0.04%-0.04%0.05%0.08%
NZD-0.24%-0.12%-0.10%-0.04%-0.10%-0.05%0.04%
CHF-0.28%-0.15%-0.14%-0.06%-0.14%-0.08%-0.04%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

Author

Ghiles Guezout

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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