USD/CAD posts modest losses below 1.3750 amid muted chance of BoC rate cut

• USD/CAD softens to around 1.3720 in Wednesday’s early Asian session. 

• Canadian annual inflation rate increases to 1.9% in June, hotter than expected. 

• A softer US CPI report might appear to boost the odds of a Fed September rate cut. 

The USD/CAD pair trades with mild losses near 1.3720 during the early Asian session on Wednesday. Hotter Canadian inflation data reduced expectations for Bank of Canada (BoC) interest rate cuts, supporting the Canadian Dollar (CAD). The US Producer Price Index (PPI) will take centre stage later on Wednesday, followed by the Fed Beige Book and Industrial Production.

Data released by Statistics Canada on Tuesday showed that the country’s Consumer Price Index (CPI) rose 1.9% YoY in June versus 1.7% prior. This figure came in line with the market consensus. Meanwhile, the BoC CPI core, one of the core measures of inflation closely tracked by the BoC, climbed 2.7% YoY in June, compared to 2.5% in the previous reading. The Loonie attracts some buyers in an immediate reaction to the uptick in inflation data. 

"Today's uptick in core inflation coupled with the upside surprise in June's labor report means the BoC is highly unlikely to cut in July," said analyst Carlos Capistran at BofA Global Research. Investors see a 5% odds the BoC cuts its benchmark interest rate from the current rate of 2.75% at the next policy meeting on July 30, down from a 14% possibility before the Canadian CPI report. 

Underlying US inflation rose by less than estimated for a fifth month in June, raising questions as to how broadly US President Donald Trump’s tariffs will impact consumer prices. Markets expect the US Federal Reserve (Fed) to stay on hold at the July meeting and then reduce by a quarter percentage point in September. Traders will take more cues from the US PPI inflation report later on Wednesday for fresh impetus.