Canadian Dollar strengthens as traders digest inflation data from Canada and US

• The Canadian Dollar strengthens slightly against the US Dollar after June CPI data matches expectations.
• Headline CPI in Canada rose by 1.9% YoY, up from 1.7% in May, driven by smaller declines in gasoline prices and higher durable goods costs.
• US CPI surprises to the upside, with headline inflation rising 0.3% MoM and 2.7% YoY.

The Canadian Dollar (CAD) strengthens against the US Dollar (USD) on Tuesday, as traders digest fresh inflation data from both Canada and the United States. The June Consumer Price Index (CPI) figures, released at 12:30 GMT, provided new insights into the monetary policy outlooks for the Bank of Canada (BoC) and the Federal Reserve (Fed), particularly as markets remain focused on the inflationary impact of recent tariffs.

At the time of writing, the USD/CAD pair is trading near 1.3675, holding within a narrow, week-long trading range. The pair has exhibited limited directional momentum in recent sessions, with price action largely confined between support at around 1.3650 and resistance near 1.3700.

Statistics Canada reported on Tuesday that the CPI rose by 1.9% YoY in June, up from 1.7% in May, matching market expectations. The modest rise in annual inflation was largely driven by a smaller drop in gasoline prices and faster price increases for durable goods, including passenger vehicles and household furniture.

Meanwhile, core CPI, which strips out food and energy, climbed to 2.7% YoY from 2.5% in May, signaling that underlying inflationary pressures are picking up. This reinforces the BoC's cautious stance, making another rate cut at the upcoming July 30 policy meeting less certain. While headline inflation remains near target, the uptick in core prices may give policymakers reason to pause.

In contrast, the US CPI report showed a sharper acceleration in price pressures. Headline inflation rose to 0.3% MoM — the largest gain in five months — lifting the annual rate to 2.7%, up from 2.4% in May. The Core CPI also increased by 0.2% MoM, with the annual rate rising to 2.9% from 2.8%.

The report showed firm price gains across energy, transportation, and tariff-affected sectors, suggesting trade-related inflation is beginning to flow through to consumers.

The hotter-than-expected US inflation print has pushed back market expectations for an interest rate cut, with traders now seeing reduced odds of a policy shift in the near term.

Looking ahead, traders will be paying close attention to speeches from several Fed officials later today, following the stronger-than-expected US inflation data. Fed Governors Michael Barr and Michelle Bowman, along with Richmond Fed President Tom Barkin, are all scheduled to speak. With the next FOMC meeting approaching, any shift in tone could influence interest rate expectations and impact the US Dollar’s near-term direction.