USD/CAD climbs to near 1.3900 as Canadian inflation cools down

• USD/CAD rises to near 1.3900 as the Canadian CPI grew at a moderate pace in March.
• The BoC is expected to keep interest rates unchanged at 2.75% on Wednesday.
• The intensifying US-China trade war has kept the US Dollar on the backfoot.

The USD/CAD pair jumps to near 1.3900 during North American trading hours on Tuesday as Statistics Canada has reported that inflationary pressures cool down in March.

The headline Consumer Price Index (CPI) rose at a slower pace of 2.3%, compared to estimates and the prior release of 2.6%. Month-on-month CPI grew moderately by 0.3% against expectations of 0.7% and the former reading of 1.1%. Softer Canadian CPI data is expected to jeopardize market expectations that the Bank of Canada (BoC) will keep interest rates steady at 2.75% in the monetary policy meeting on Wednesday.

This would be the first interest rate meeting of the BoC since June, in which the central bank will keep interest rates on hold.

Investors will also pay close attention to BoC Governor Tiff Macklem’s press conference to get cues about how the tariff policy of United States (US) President Donald Trump will shape the economic and the monetary policy outlook.

Meanwhile, the US Dollar (USD) strives to gain ground after a three-day losing spree. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gauges bids near the three-year low of 99.00.

The Greenback faced an intense sell-off in the last few trading days on escalating fears that the trade war between the US and China will be painful for the domestic economy. The tit-for-tat tariff fight between the world’s largest powerhouses is expected to slow down business activities in the US. The US is incapable of securing substitutes for Chinese goods on an immediate basis, which could impact the functioning of the supply mechanism. Such a scenario will boost inflationary pressures as business owners will be forced to raise prices to maintain the demand-supply equilibrium.