USD/CAD price retreats from multi-year high as market awaits Canadian CPI
USD/CAD dips from multi-year high as Canadian CPI awaits
The USD/CAD pair touched its highest level since March 2020, driven by remarks from the U.S. President Donald Trump regarding potential tariffs. Trump’s proposal to impose a 25% tariff on Canadian and Mexican imports by early February spurred the U.S. dollar’s recovery, pushing USD/CAD past the 1.4500 psychological barrier.
The Canadian dollar (CAD) suffered as market participants priced in the economic implications of the tariffs.
USD/CAD price movement (Dec 2024 - Jan 2025) Source: TradingView.
USD recovery and oil price dynamics
While the U.S. dollar staged a modest recovery after hitting a two-week low, expectations of lower U.S. Treasury yields and Federal Reserve rate cuts limited further gains. Investors anticipate two Fed rate cuts by year-end due to easing inflation pressures, contributing to a decline in bond yields. Concurrently, crude oil prices rose slightly, bolstering the commodity-linked CAD and capping USD/CAD's upside momentum.
Focus shifts to Canadian CPI
Market attention is now firmly on Canada’s Consumer Price Index (CPI) report, which could shape the Bank of Canada’s monetary policy direction. The CPI data will provide insights into domestic inflation trends and their impact on interest rate decisions. With no major U.S. economic releases scheduled, USD/CAD’s movement will hinge on Canadian CPI figures, U.S. bond yields, and broader market risk sentiment.
In conclusion, USD/CAD remains volatile amid mixed signals from Trump’s tariff plans, U.S. inflation expectations, and rising oil prices. Canadian CPI data will be a key determinant in shaping the pair’s near-term trajectory.
In our previous analysis, we discussed USD/CAD’s pullback from its multi-year high, with mixed signals influencing the pair’s movement. The outlined factors remain crucial in shaping the outlook moving forward.
