USD/CAD Remains Limited Below the 1.3500 Threshold as Attention Turns to US CPI Data

During the early Asian session on Tuesday, the USD/CAD pair remains capped below the critical 1.3500 figure. A decline in US Treasury bond yields and the value of the US Dollar (USD) both exert pressure on the pair. Until later on Tuesday, investors await the US Consumer Price Index (CPI) inflation data for February. The USD/CAD is trading at 1.3478 at press time, a decrease of 0.03% on the day.

The inconclusive February data on the US labor market failed to persuade the Federal Reserve regarding monetary policy expectations. Moreover, last week's dovish remarks by Federal Reserve (Fed) officials reaffirmed the anticipation of a rate cut in June. In his semiannual testimony last week, Fed Chair Powell stated that additional confidence is required before the central bank can reduce the interest rate, but that time is quickly approaching. The likelihood of an interest rate reduction occurring by June is estimated at approximately 70% by money markets, as per the CME FedWatch tool.

As anticipated, the Bank of Canada maintained the interest rate at 5% for the fifth consecutive meeting last week. Nonetheless, BoC governor Tiff Macklem stated at a press conference that reducing interest rates is imprudent until further progress is made in containing core inflation. He added that the central bank should extend the implementation of higher interest rates. The money markets have postponed wagers on a completely priced-in rate cut from June to July. As a result, the Canadian Dollar (CAD) appreciates in value relative to the USD.

Tuesday, traders will closely monitor the US inflation data for February. It is anticipated that the headline CPI will remain unchanged at 3.1% YoY, whereas the core figure will decline to 3.7% YoY. The focus will transition to US Retail Sales on Thursday, anticipating an improvement to 0.8% in February. The USD/CAD combination might obtain a distinct direction from these occurrences.