USD/CAD Falls to 1.3650 as Weak US Inflation Boosts Fed Rate Cut Bets

USD/CAD Drops Below 1.3650 on Weak US CPI, Fed Rate Cut Hopes Rise

USD/CAD remains on the back foot in early Thursday Asian trading, quoted at around 1.3665, after dipping to 1.3650. The US Dollar (USD) weakened against the Canadian Dollar (CAD) following disappointing inflation data from the US, boosting speculation that the Federal Reserve (Fed) could cut interest rates in September.

Soft CPI Fuels Fed Pivot Expectations

Data released by the US Bureau of Labor Statistics (BLS) on Wednesday showed that the Consumer Price Index (CPI) rose 2.4% year-over-year in May, lower than the 2.5% forecast and slightly above April’s 2.3% reading.

The core CPI, excluding food and energy, increased by 2.8% YoY, undercutting the 2.9% forecast. On a month-over-month basis, both headline and core CPI rose just 0.1%, falling short of expectations (0.2% and 0.3%, respectively). These figures reinforced investor confidence that the Fed may pivot to rate cuts soon.

Upcoming Economic Data in Focus

Markets now turn attention to upcoming US data, including the Producer Price Index (PPI) and weekly Initial Jobless Claims, which may offer further clues into inflationary pressures and labor market health.

Oil Price Rally Supports CAD Strength

In addition to soft US data, the Canadian Dollar finds strength from rising crude oil prices, with WTI oil extending gains on a sustained demand outlook. Since oil is one of Canada’s major exports, stronger energy prices tend to support the CAD.

Key Takeaways for Traders:

• USD/CAD drops to 1.3650, pressured by weak US CPI figures.
• May’s US CPI rose 2.4% YoY (vs. 2.5% expected), core CPI at 2.8%.
• Fed rate cut bets for September are gaining traction.
• Crude oil rally boosts Canadian Dollar.
• Market focus now shifts to US PPI and jobless claims.

Related Reading on Tredu.com:

• How Inflation Data Impacts Currency Markets
• Crude Oil Prices and Their Influence on CAD
• Federal Reserve Policy Expectations in 2025