The USD/CAD currency pair remained relatively flat around the mid-1.3900s. As we head into the European session on Tuesday, it is still consolidating sideways. The calm indicates that the market is holding its breath for the release of key Canadian consumer inflation numbers. These stats are likely to strongly determine the currency’s direction.
Though the USD/CAD is currently trading flat, there are a number of underlying factors that are driving it today. The Canadian dollar, also referred to as the Loonie, is straining. That’s largely because of declining crude oil prices and a lessening need for the U.S. dollar. Analysts at Scotiabank think this dynamic is providing strong support for the USD/CAD pair. Until then it is set to be very quiet as investors wait for Wednesday’s inflation data.
The recent slide in crude oil prices has clearly been a factor in battering the Loonie. This uncertainty comes as hopes for a U.S.-Iran nuclear deal—expected to lead to even more Iranian oil supplies—have dimmed. All of this is putting additional downward pressure on crude prices. Consequently, this has been a bullish environment for the USD/CAD pair. Counterintuitively, lower oil prices often strengthen the currencies of commodity-dependent countries.
All global markets are currently moving this weekend with sharp reactions to very bad U.S. economic data. The monthly Retail Sales numbers had everyone fretting about slow growth in the world’s largest economy. After all, Moody’s just recently threatened to downgrade U.S. sovereign ratings. This decision has not only devastated the economic outlook, but fostered a chilling climate of uncertainty. All of these advances have affected the demand of the U.S. dollar, lending even more support to the USD/CAD pair.
The latest inflation data from the United States confirms that price pressures are subsiding. Consumer Price Index (CPI) and Producer Price Index (PPI) data both showed weaker-than-expected prints. Such a trend would raise a lot of speculation and initial market reaction about deeper interest rate cuts by the Federal Reserve in 2025. Consequently, changes in USD demand will have their impact on USD/CAD trading.
It is no surprise to market participants in Canada that all eyes await the unveiling of the headline Consumer Price Index (CPI). They hope it declines precipitously, to a year-over-year 1.6%, from 2.3% last month. Such a decline would strengthen the arguments for further rate cuts by the Bank of Canada (BoC). This would be a major game changer for USD/CAD dynamics.
A stronger-than-expected CPI print would be the negative surprise for the markets. Traders will be understandably jittery amid continuing uncertainty over U.S. trade policy, including President Donald Trump’s reciprocal tariffs. These factors, combined, may have severe consequences for the Canadian and American economies and their currencies.
To compare, Canada publishes their CPI on a monthly basis. Traders will be closely watching these numbers as they provide insight into upcoming BoC monetary policy direction. The next release is scheduled for May 20, 2025, at 12:30 PM EDT, providing a crucial data point that could influence market sentiment and currency valuations.