Market Analysis

USD/CAD ends its five-day winning streak, trading at 1.3820 in the Asian session on Wednesday. The minor drop in the US dollar (USD) puts downward pressure on the USD/CAD pair. However, weaker crude oil prices may put pressure on the Canadian Dollar (CAD), capping the pair's losses.

The latest Canadian inflation numbers gave support for the Bank of Canada's (BoC) decision to consider reducing borrowing conditions at its June meeting, as closely monitored core inflation showed signs of sustained decline.

The Consumer Price Index (CPI) climbed by 0.6% month on month, somewhat less than the projected 0.7% in March but higher than the prior gain of 0.3%. CPI (YoY) increased by 2.9% versus 2.8% previously. Meanwhile, Core CPI (YoY) grew by 2.0%, a slower rate than the prior 2.1% increase. The monthly Core index increased by 0.5%, compared to the preceding 0.1%.

On the other hand, hawkish comments from Federal Reserve (Fed) officials, as well as an influx of safe-haven flows, may strengthen the US Dollar (USD) and restrict the USD/CAD pair's downside. The US Dollar Index (DXY) has retreated from its five-month high of 106.51 set on Tuesday. This fall could be linked to a small decrease in US Treasury yields.

Federal Reserve (Fed) Chairman Jerome Powell stated on Tuesday that the US economy has shown significant strength. However, Powell also stated that recent data indicate insufficient progress on inflation this year, and that attaining confidence that inflation would achieve the 2% objective will take "longer than expected." Powell's hawkish tone may have supported the US dollar.

Paraphrasing text from "FX Street" all rights reserved by the original author.