USD/CAD Drops to 1.3700 Ahead of Canada CPI and BoC July Rate Decision

Support: 1.3680 / 1.3625
Resistance: 1.3750 / 1.3800
Bias: Bearish short-term, contingent on CPI outcome

USD/CAD Slides as Traders Await Key Canadian CPI for May

The USD/CAD pair retreats to 1.3700 during Tuesday’s European session after touching a high of 1.3800 the previous day. The Canadian Dollar strengthens slightly as traders position ahead of a crucial inflation release that could set the tone for the Bank of Canada’s July rate decision.

Canada May CPI in Focus: Will It Justify a Rate Cut?

Scheduled for release at 1:30 PM London time, Canada’s May Consumer Price Index (CPI) is expected to come in at 1.7% year-over-year, unchanged from April. However, more attention is on core inflation measures — particularly trimmed and median CPI, projected to dip slightly to 3.0% from 3.15%.

The BoC has signaled concern that inflation may remain “firmer than previously thought,” making today’s CPI reading a pivotal input for policymakers weighing a potential 25bps rate cut at the July 30 meeting.

Market Pricing and BoC Rate Cut Odds

Interest rate swaps now price in a 39% probability of a 25bps cut in July, with expectations of between 25 and 50bps of easing over the next year. The projected terminal rate is between 2.25% and 2.50%, according to current market positioning.

This shift in sentiment has dampened demand for the US Dollar, especially as Fed officials turn dovish, and global risk appetite improves following the Israel-Iran ceasefire.