Insights 
VT 
The USD/CAD currency pair saw a decline after April’s Consumer Price Index (CPI) figures in the US came in below predictions, impacting market perceptions. The headline CPI rose 2.3% year-on-year in April, down from 2.4% in March, while the IPSOS Consumer Confidence Index in Canada decreased to 47.70 in April, the lowest since July 2024.
For a second day in a row, USD/CAD traded weakly near 1.3930 as the US Dollar slipped owing to the disappointing CPI figures. Core CPI remained steady at 2.8% annually, and monthly gains were 0.2% for both the headline and core indices. Market focus now shifts to upcoming US data releases, such as the Producer Price Index and the University of Michigan’s Consumer Sentiment Survey.
Canadian Economic Concerns
In Canada, economic concerns persist, compounded by an ongoing trade dispute with the US and recent underwhelming employment statistics, all impacting rate hike predictions by the Bank of Canada. Concurrently, Oil prices have pressured the CAD, with West Texas Intermediate trading near $63.00 per barrel following unexpected crude stock increases in the US.
Key influences on the Canadian Dollar (CAD) stem from Bank of Canada interest rates, Oil prices, inflation, and trade balances. Macroeconomic data such as GDP and employment figures also play important roles in determining CAD strength, affecting foreign investment and influencing central bank policies.
The weaker-than-expected CPI figures out of the United States have tempered the previous momentum behind the US Dollar, which in turn weighed on USD/CAD across recent sessions. The headline inflation rate dipped slightly from the previous month, coming in just below forecast at 2.3% year-on-year in April. This small deviation carries weight across interest rate expectations, as markets had been speculating on whether inflationary pressures would compel the Federal Reserve to sustain tighter monetary policy deeper into the year.
Notably, core CPI—often considered a steadier measure devoid of volatile food and energy prices—held steady at 2.8% on an annual basis. Month-over-month changes were minimal, clocking in at 0.2% for both core and headline metrics. These figures suggest that while inflation is not surging, it’s also not softening quickly enough to justify immediate changes from the Fed. That nudges market pricing of rate cuts further down the calendar, especially if upcoming data from the Producer Price Index or consumer sentiment surveys show restraint in price growth or confidence.
Focus on Future Canadian and US Releases
From the Canadian side, the situation remains pressured on several fronts. Sentiment within Canada appears to be fading, as shown by the latest IPSOS reading, which has dipped to 47.70—the lowest level since mid-2024. A climate of caution persists, and this undercuts domestic demand expectations. With the CAD being so tightly entwined with both Oil and US trade dynamics, the recent build-up in US crude inventories has added weight to price per barrel, dragging West Texas Intermediate closer to $63—well below recent highs.
That drop in crude can’t be taken lightly, especially as it’s paired with lacklustre employment trends at home and heightened trade tensions. Markets are now actively reassessing the odds of any future tightening moves from the Bank of Canada. Weak data has, arguably, provided the BoC with cover to adopt a more dovish approach, especially if inflation holds steady or edges lower.
As we monitor movements ahead, the emphasis remains on digesting new releases from both sides of the border. For US figures, not only will producer input costs carry weight, but the forward-looking view from consumers—as measured by the University of Michigan survey—could shape rate speculation into early summer. Any sharp deviation in those metrics is likely to bring volatility to the pair.
On the Canadian front, focus continues to rest on whether the Bank of Canada can maintain a wait-and-watch stance amid slowing macro indicators. External inflationary pressures, linked to commodities and trade, will also shape decisions from policymakers.
Given the current trajectory of data, we find ourselves more responsive to US inflation inputs and forward guidance from central bank members. With positions skewed by these macro indicators, it’s now clearer which metrics will trigger the next round of market engagement, especially as implied volatility remains near recent lows. Timing remains key.
