Canadian Dollar Weakens as US Inflation Cools, Rate Cut Bets Soar

The Canadian Dollar (CAD) declined against major currencies on Thursday, as softer-than-expected US inflation data ignited renewed hopes for a faster pace of interest rate cuts by the Federal Reserve (Fed). With no significant economic releases from Canada, the CAD remained vulnerable to broader market sentiment.

The US Consumer Price Index (CPI) for June surprised markets with a negative reading, fueling speculation that the Fed could be more aggressive in easing monetary policy. This sparked a rally in risk assets and weighed on the US Dollar (USD), but the CAD failed to capitalize on the USD’s weakness, highlighting its ongoing struggle amidst a lack of domestic data.

Key Market Drivers:

  • US CPI: Unexpected contraction in June fueled hopes for accelerated Fed rate cuts.
  • Rate Cut Bets: Markets now price in a 95% probability of at least a quarter-point cut at the September FOMC meeting.
  • CAD Outlook: The Canadian Dollar remains directionless, awaiting domestic CPI data due next Tuesday.
  • PPI Data: US Producer Price Index (PPI) figures for June, scheduled for release on Friday, are expected to show a slight increase.

USD/CAD Technical Analysis:

Despite an initial dip to multi-month lows, the USD/CAD pair rebounded from the 200-day Exponential Moving Average (EMA) near 1.3600. The pair remains trapped in a sideways range, indicating ongoing indecision in the market.

Key Points:

  • Canadian Dollar weakens despite broad USD weakness.
  • US CPI data fuels rate cut expectations.
  • CAD struggles amid lack of domestic economic data.
  • USD/CAD rebounds from 200-day EMA but remains range-bound.