The USD/CAD pair continues its decline following the release of US Consumer Price Index (CPI) data and the Bank of Canada’s (BoC) policy decision on Wednesday. Currently trading around 1.3180 in the early Asian session, the pair remains under pressure.
In line with market expectations, the Bank of Canada (BoC) raised the benchmark interest rate by 25 basis points (bps) to 5% during its July policy meeting. BoC Governor Tiff Macklem emphasized the need for higher interest rates to slow demand growth in the economy and address inflationary pressures. He further stated that additional rate hikes are likely in the future.
The BoC’s decision to increase rates followed the release of US inflation data for June, which showed a slight decline in the Consumer Price Index (CPI) to 3% year-on-year from the previous 3.1%. The core CPI also decreased to 4.8% year-on-year from 5.3%, falling short of the market consensus of 5%.
Consequently, the US Dollar experienced selling pressure, resulting in a significant drop to around 101.50, the lowest level since April 2022. The inflation data reinforced expectations that the Federal Reserve would refrain from raising interest rates further at the upcoming July 25-26 policy meeting.
Looking ahead, market participants will closely monitor the release of the US Producer Price Index (PPI) for June and Unemployment Claims during the early North American session on Thursday. Investors will seek fresh catalysts and potential trading opportunities within the USD/CAD pair.
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