The USD/CAD pair drifted lower to 1.3640 in Wednesday’s early European session despite the softer Canadian CPI inflation data. The annual Canadian CPI inflation rate slowed to 2.7% in April from 2.9% prior, increasing the likelihood of a rate cut from the Bank of Canada (BoC) in June.
Speculation and Investor Sentiment
Following the release of the inflation data, traders have started to speculate about the possibility of a rate cut during the upcoming BoC meeting. The market estimation was in line with the actual figures, with headline CPI inflation easing to 0.5% MoM in April from 0.6% in the previous reading. Additionally, the BoC’s core CPI rose to 1.6% YoY in April, compared to a 2% increase in March.
The easing inflation data has prompted investors to adjust their positions, with bets for a rate cut on June 5 increasing to nearly 55% from 39% before the data release. This shift in sentiment has put pressure on the Canadian Dollar (CAD), causing the USD/CAD pair to weaken to 1.3640.
The pace of interest rate cuts from both the BoC and the US Federal Reserve (Fed) is expected to influence the movement of the USD/CAD pair. The Fed remains cautious and is waiting for more encouraging data to ensure that inflation is on track towards its 2% target.
The recent Canadian CPI inflation data has had a significant impact on the movement of the USD/CAD pair. The market reaction to the slowing inflation rate has increased speculation about a possible rate cut from the BoC in June. Investors are closely monitoring central bank policies and economic indicators to gauge the future direction of the currency pair.
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