CAD Strengthens Against USD as Inflation Data Looms
The Canadian Dollar has strengthened against the US Dollar ahead of key inflation data. The USD/CAD pair trades around 1.3860 on Monday, down 0.11% on the day. Investors are scaling back expectations of further monetary tightening by the Federal Reserve, following a series of disappointing US economic releases.
The recent weakening of the US Dollar has reduced the likelihood of an imminent Fed rate hike. According to the CME FedWatch tool, markets now price in around a 30% chance of a rate increase at the next meeting, down from nearly 40% a week earlier.
On the Canadian side, investors await the release of the July Consumer Price Index (CPI). Headline inflation is expected to rise 2.9% YoY, while prices are forecast to advance 0.7% on a monthly basis. The Bank of Canada's wait-and-see approach could be reinforced if there is an acceleration in price pressures.
TD Securities expects only a modest firming in inflation data, with headline CPI rising by 0.1 percentage points to 2.9% YoY in July. They also forecast core CPI-trim/median to hold stable at 1.85% YoY.