US Inflation Data Boosts USD/CAD Ahead of Fed Decision

The USD/CAD currency pair has seen modest gains on Monday morning as traders anticipate a potential interest rate hike from the Federal Reserve later this week. The US Consumer Price Index (CPI) data released last Friday showed inflation rising to 3.4% in August, surpassing market expectations.

This development has bolstered expectations for a Fed rate hike, with markets now pricing in nearly 86% odds of an increase this week and another move higher later in the year, according to the CME FedWatch tool.

The Canadian Dollar has been relatively stable despite these developments, thanks in part to front-end US/Canada spreads holding steady. Analysts at Scotiabank note that this stability provides some near-term support for the CAD.