USD/CAD steadies above 1.3950 due to trade optimism, expects a rise in US inflation

USD/CAD remains steady ahead of the closely watched US Consumer Price Index release for April, scheduled for Tuesday.
Headline CPI is expected to rise to 0.3% MoM, recovering from the previous -0.1%.
The commodity-linked Canadian Dollar may find some support as crude Oil prices continue to climb.

Akhtar Faruqui FXStreet

USD/CAD is aiming for its fifth straight daily gain, hovering near 1.3970 during Tuesday’s European session. However, the pair faced some resistance as the US Dollar (USD) softened ahead of the highly anticipated US Consumer Price Index (CPI) report for April, due later in the North American session.

Market expectations suggest a rebound in headline CPI to 0.3% month-over-month from -0.1%, while core CPI is also forecast to increase to 0.3% from 0.1%. Year-over-year readings for both are projected to remain unchanged.

Despite the USD’s slight retreat, the USD/CAD pair found support from encouraging developments in US-China trade talks. Over the weekend, both countries reached a preliminary agreement in Switzerland aimed at significantly reducing tariffs—an effort seen as a step toward easing trade tensions. Under the deal, the US will lower tariffs on Chinese goods from 145% to 30%, while China will cut tariffs on US imports from 125% to 10%. This breakthrough has lifted market sentiment and is viewed as a positive sign for global trade stability.

On the other hand, rising Crude Oil prices could lend support to the Canadian Dollar (CAD), potentially limiting further gains in the USD/CAD pair. As Canada is the largest Oil exporter to the US, higher Oil prices generally strengthen the CAD.

West Texas Intermediate (WTI) Oil price is extending its winning streak to a fourth straight session, trading near $61.70 per barrel. The rally follows renewed optimism from the US-China tariff deal, reinforcing hopes for improved global trade dynamics.

Economic Indicator

Consumer Price Index (MoM)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM figure compares the prices of goods in the reference month to the previous month.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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