- USD/CAD seeks temporary support near 1.4400 following the US February inflation report and the BoC’s policy decision.
- Softer US inflation fuels expectations of a dovish shift from the Federal Reserve.
- The BoC cut interest rates by 25 bps to 2.75%, as anticipated, while delivering a gloomy economic outlook.
The USD/CAD pair hovers near 1.4400 in North American trading on Wednesday, seeking temporary support after the release of the US February Consumer Price Index (CPI) report and the Bank of Canada’s (BoC) interest rate decision.
US inflation data showed a sharper-than-expected slowdown, with headline and core CPI easing to 2.8% and 3.1% year-over-year, respectively. Monthly figures also rose at a modest 0.2%, below the forecasted 0.3%. Following the release, the US Dollar Index (DXY) briefly rebounded to 103.75 from a four-month low of 103.20 but struggled to sustain momentum as cooling inflation strengthened Federal Reserve (Fed) rate-cut expectations.
Meanwhile, the Canadian Dollar (CAD) gained traction after the BoC cut its benchmark interest rate by 25 basis points to 2.75%, as widely expected. Market sentiment suggests further BoC easing amid concerns over Canada’s economic outlook, exacerbated by ongoing trade tensions with the US.
On Tuesday, Ontario Premier Doug Ford agreed to revoke the 25% surcharge on electricity exports to the US after President Donald Trump threatened to impose an additional 25% tariff on Canadian aluminum and steel imports. Earlier this month, Trump had already enforced similar tariffs on Canada for allowing drug imports into the US across the border.
Following the Bank of Canada’s (BoC) policy decision, Governor Tiff Macklem cautioned that escalating trade tensions could hinder Canada’s job market recovery. He warned that US tariffs might drive inflation higher while dampening economic growth. Macklem projected moderate expansion for the January-March period but noted that ongoing trade conflicts could weigh on business sentiment and overall economic activity.
