USD/CAD slid to a four-week low near the 1.4045-1.4040 area on Wednesday as a sharp drop in US consumer inflation and a rally in crude oil weighed on the US Dollar and lifted the Canadian Dollar. Traders now wait on the Bank of Canada rate decision, US producer prices, and a second day of Fed testimony.
The USD/CAD pair fell for a second straight session, sliding to a four-week trough around the 1.4045-1.4040 band during Asian trading on Wednesday. The backdrop favors sellers, reinforcing expectations that the pair's correction from its highest level since April 2025, reached last month, could run further.
Weak US inflation caps the Dollar
The US Dollar struggled to build on its earlier rebound from a multi-week low as traders pared back bets on further Federal Reserve rate hikes after softer inflation data. Headline US consumer prices fell 0.4% in June, against an expected 0.1% decline, the largest monthly drop since April 2020. That print kept the Dollar from holding its upside.
Oil strength bolsters the Loonie
Elevated crude oil prices underpinned the commodity-linked Canadian Dollar and added to the pressure on USD/CAD. Crude climbed to a nearly one-month high on Tuesday amid escalating friction between the United States and Iran and the closure of the Strait of Hormuz.
The US military launched another round of airstrikes against Iran on Tuesday, and Iran responded with attacks on US military assets in Gulf countries. US President Donald Trump warned that the US would strike Iranian bridges and power plants next week unless Tehran returns to the negotiating table. Those events kept a geopolitical risk premium embedded in oil prices.
Firm oil revives inflation worries
Firm crude prices support the Canadian Dollar, but they also revive concerns about energy-driven inflation pressures. Such worries could encourage the Federal Reserve to hold a hawkish stance for longer, a factor that may lend some support to the Dollar as a perceived safe-haven asset. Traders appear cautious about aggressive bets on the pair before key policy events.
What comes next
Market participants are watching several imminent risk events for direction. These include the Bank of Canada interest rate announcement, the release of US Producer Price Index data, and Fed Chair Kevin Warsh's second day of congressional testimony. Their outcomes may shape expectations around relative monetary policy paths and the currency pair's trajectory later in the North American session.
Source: TradingPedia
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