USD/CAD holds above the 1.3500 mark ahead of Canadian CPI data

The USD/CAD pair trades on a stronger note above the 1.3500 psychological mark during the Asian session on Tuesday. The uptick of the pair is bolstered by the stronger US Dollar (USD). The Canadian inflation data will be in the spotlight on Tuesday and could trigger volatility in the market ahead of the FOMC Minutes. At press time, USD/CAD is trading at 1.3506, gaining 0.12% on the day.  

The US January Producer Price Index (PPI) data rose at the largest increase since August 2023, indicating elevated inflationary pressure in the US economy. Investors lower their bets on the interest rate cuts from the Federal Reserve (Fed) and the expectation has shifted from May to June monetary policy meeting. The Federal Reserve Open Market Committee (FOMC) minutes for January’s policy meeting could provide some outlook about interest rates trajectory. 

Canada’s January Consumer Price Index (CPI) will be due on Tuesday, which is forecast to ease from 3.4% YoY in December to 3.3% in January. The Bank of Canada (BoC) highlighted the outsized role housing has played in supporting inflation, and markets do not anticipate the BoC will cut interest rates before its June monetary policy decision.

Meanwhile, the rise of crude oil might underpin the commodity-linked Loonie and cap the upside of the USD/CAD pair. It’s worth noting that Canada is the largest oil exporter to the United States (US) and the Canadian Dollar (CAD) is particularly sensitive to fluctuations in oil prices

The Canadian CPI inflation data is due later on Tuesday. If the report shows a weaker-than-expected outcome, this could weigh on the Loonie. Later this week, investors will focus on the FOMC Minutes on Wednesday, along with the Fed’s Bostic and Bowman speeches.