USD/CAD delivers V-shape recovery above 1.3500 on soft Canadian Inflation data
- USD/CAD rebounds strongly to 1.3500 as soft Canadian inflation data raise BoC rate-cut hopes.
- The USD Index remains under pressure as the Fed sees inflation moving in the right direction.
- Investors await the FOMC minutes for fresh guidance on interest rates.
The USD/CAD pair rises as Statistics Canada has reported softer-than-forecasted inflation data for January. The monthly headline inflation remained stagnant while investors anticipated a sharp rise of 0.4%. In December, the inflation data was contracted by 0.3%. The annual headline inflation rose at a slower pace of 2.9% from expectations of 3.3% and the former reading of 3.4%.
The core Consumer Price Index (CPI), published by the Bank of Canada (BoC), which excludes volatile food and oil items, decelerated to 2.4% from 2.6% in December. Monthly, the underlying inflation data rose slightly by 0.1% after deflating by 0.5% in December.
A slower-than-projected increase in inflation data is expected to push back expectations for the BoC, maintaining interest rates at 5% for longer.
Meanwhile, the market mood remains upbeat as the Federal Reserve (Fed) is confident that inflation is declining towards 2%, and the one-time increase in the Consumer Price Index (CPI) data for January is insignificant.
Investors see different price actions in risk-perceived assets. S&P500 futures have posted significant losses in the European session while risk-sensitive currencies have been underpinned against the US Dollar. The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, has printed a fresh five-day low near 104.00.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
