Small gains are being made in the USD/CAD pair as it rises above the 1.3700 mark. Investors are waiting for the U.S. Consumer Price Index (CPI) data to come out. The steady rise of the pair shows that the market is becoming more cautious ahead of inflation numbers that could have a big effect on the Federal Reserve's decisions about monetary policy.
As Treasury yields have gone up and people think that the Fed may stick to its “hawkish” stance on interest rates if inflation data comes in higher than expected, the U.S. dollar has stayed strong. This has kept the U.S. dollar strong against the Canadian dollar, even though the price of crude oil, which is a big factor for the Canadian dollar, has stayed pretty stable. Oil has a big effect on Canada's currency because the country depends on energy exports. However, the current focus on U.S. inflation has kept the loonie under pressure.
The fact that the USD/CAD moved above 1.3700 shows that traders are being cautious while they wait for clear signs from the CPI report to figure out which way the Fed will raise interest rates in the future. A figure of inflation higher than expected could make the U.S. dollar even stronger because it would likely make the case for keeping interest rates high even stronger. On the other hand, a lower CPI number could give the Canadian dollar some room to move, especially if oil costs stay the same.
Close attention is being paid to both the U.S. Consumer Price Index (CPI) and the market trends for crude oil. This means that the USD/CAD could become more volatile in the next few days. The pair stays above 1.3700 for now, which shows that the market is waiting for the next big event.
