USD/CAD retreats from multi-year top, hovers around mid-1.4400s as focus shifts to Canadian CPI

USD/CAD spikes to a fresh multi-year peak in reaction to Trump’s tariff remarks.
A modest USD recovery from a two-week low contributes to the strong move up.
Declining US bond yields caps the USD and the pair amid an uptick in Oil prices.
Traders also seem reluctant and opt to wait for the crucial Canadian CPI report.

Haresh Menghani FXStreet

The USD/CAD pair trims a part of strong intraday gains to the highest level since March 2020 and trades around the 1.4440-1.4435 area during the early European session on Tuesday, still up 0.90% for the day.

The Canadian Dollar (CAD) came under heavy selling pressure after US President Donald Trump indicated plans to impose 25% tariffs on imports from Canada and Mexico as soon as early February. The US Dollar (USD), on the other hand, stages a modest recovery after the overnight slump to a two-week low amid expectations that Trump's protectionist policies would boost inflation and force the Federal Reserve (Fed) to stick to its hawkish stance. This, in turn, lifts the USD/CAD pair beyond the 1.4500 psychological mark, though a combination of factors keeps a lid on any further gains.

Investors are betting that the Fed will lower borrowing costs twice by the end of this year amid signs of abating inflation in the US. This leads to a further steep decline in the US Treasury bond yields, which, along with a generally positive tone around the equity markets, caps gains for the safe-haven buck. Apart from this, the emergence of some buying around Crude Oil prices underpins the commodity-linked Loonie and contributes to keeping a lid on the USD/CAD pair. Traders also seem reluctant and opt to wait for the release of the latest consumer inflation figures from Canada later today.

The crucial Canadian Consumer Price Index (CPI) report will play a key role in influencing the Bank of Canada's (BoC) interest rate outlook, which, in turn, will drive the domestic currency and provide some meaningful impetus to the USD/CAD pair. Meanwhile, there isn't any relevant market-moving economic data due for release from the US, leaving the USD at the mercy of the US bond yields and the broader risk sentiment.

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by Statistics Canada on a monthly basis, represents changes in prices for Canadian consumers by comparing the cost of a fixed basket of goods and services. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.

EUR/USD deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.