USD/CAD gathers strength to above 1.3750 after US CPI data

• USD/CAD edges higher to around 1.3780 in Wednesday’s Asian session. 

• US CPI for July rose 2.7% YoY, while the core CPI climbed 3.1% YoY. 

• Lower crude oil prices weigh on the commodity-linked Loonie.

The USD/CAD pair gathers strength to near 1.3780 during the Asian trading hours on Wednesday. A decline in crude oil prices weighs on the commodity-linked Canadian Dollar (CAD) and creates a tailwind for the pair. Federal Reserve (Fed) officials are set to speak later on Wednesday, including Austan Goolsbee and Raphael Bostic.

US inflation, as measured by the Consumer Price Index (CPI), remained unchanged at 2.7% on a yearly basis in July, the US Bureau of Labor Statistics (BLS) reported on Tuesday. This figure came in below the market expectation of 2.8%. The core CPI, which excludes the volatile energy and food industries, climbed by 3.1% YoY in July, compared to the 2.9% rise recorded in June and above the market consensus of 3%.

Cooler-than-expected CPI data and a soft labor market have thrown the Fed into a tight spot. Traders increase their bets that the US central bank will cut rates in the September meeting. According to the CME’s FedWatch tool, markets are now pricing in nearly a 94% chance of a Fed rate cut next month, up from an 85% possibility before the US inflation data release. Traders also raise their bets on rate reductions in October and December, which might cap the upside for the USD. 

Meanwhile, extended losses in crude oil prices due to optimism over the proposed United States (US)-Russia meeting could undermine the Loonie against the USD. US President Donald Trump said last week that he would meet Russian President Vladimir Putin in Alaska on Friday to discuss the Ukraine issue. It’s worth noting that Canada is the largest oil exporter to the US, and lower crude oil prices tend to have a negative impact on the CAD value.