USD/CAD softens to around 1.4300 in Tuesday’s late American session.
Canada's annual inflation rate jumped to 2.6% in February, hotter than expected.
The Fed is anticipated to stay on hold when it concludes its two-day meeting on Wednesday.
The USD/CAD pair loses traction to near 1.4300 during the late American session on Tuesday, pressured by the weaker US Dollar (USD) and lower US yields. Investors will closely monitor the Federal Reserve (Fed) interest rate decision on Wednesday, with no change in rate expected.
The latest Canadian inflation data has added to the challenges faced by the Bank of Canada (BoC). The annual inflation rate, as measured by the change in the Consumer Price Index (CPI), climbed to 2.6% in February from 1.9% in January, Statistics Canada reported on Tuesday. This reading came in hotter than the market expectation of 2.1%.
The CPI rose 1.1% MoM in February, compared to 0.1% in January, hotter than the 0.6% expected. The core CPI, which excludes volatile food and energy prices, rose 0.4% MoM in February, matching January's increase.
Currency swaps put the chance of a pause on interest rate cuts at 59%, according to Reuters, while economists' forecasts are mixed. The Canadian Dollar (CAD) attracts some buyers in an immediate reaction to the hotter inflation data.
The Greenback remains under selling pressure due to fears of an economic slowdown in the United States. The Fed is expected to hold its monetary policy stance at its March meeting on Wednesday amid persistent inflation concerns and heightened economic uncertainty.
Traders will keep an eye on the new economic projections from Fed officials for more cues about the path of US interest rates. Any hawkish comments from the Fed policymakers could lift the USD against the CAD in the near term.
"The SEP (Summary of Economic Projections) will be the most interesting aspect, I imagine, with near-term inflation expectations likely nudged higher, and growth projections marked down a touch, though conviction behind those forecasts is going to be lacking, amid the ever-changing macro outlook," said Michael Brown, senior research strategist at Pepperstone.
* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
