Canadian Dollar Gains Strength as US Inflation Data Declines

The Canadian dollar has been gaining strength against the US dollar as US inflation data continues to decline. The USD/CAD pair is trading below 1.3900, hitting a two-month low on August 14.

The July Producer Price Index (PPI) data came in broadly below expectations, causing the market-implied probability of a Federal Reserve rate hike in September to drop from 40% to 38%. This has put pressure on the US dollar and provided support for the Canadian dollar.

New York Fed President John C. Williams stated that he expects inflation to continue easing as the impact of last year's tariff increases and the war in the Middle East gradually fades. This reinforces market expectations for no change in policy in September.