USD/CAD recovers some ground around the 1.3220 area, eyes on Canadian CPI

• USD/CAD recovers and takes a breather near the 1.3220 mark. 
• Markets expect the Federal Reserve (Fed) to be less aggressive with tightening monetary policy post-July meeting. 
• BoC policymakers expect inflation to ease from 3% next year towards the 2% target.
• Market players will take cues from the Canadian Consumer Price Index (CPI) due on Tuesday.

The USD/CAD pair recovers some ground and holds above the 1.3220 mark in the early Asian session after hitting the lowest level since September 2022. Market participants will continue to digest the latest US inflation data and keep an eye on the Canadian Consumer Price Index (CPI) due on Tuesday amidst the Federal Reserve (Fed) blackout scheduled for July 25-26.

The preliminary reading of the University of Michigan's (UoM) Consumer Confidence Index increased to 72.6 from 64.4 in June, above the market's estimation of 65.5. Meanwhile, one-year and five-year consumer inflation expectations rose to 3.4% and 3.1%, respectively, from 3.3% and 3% prior. Additionally, US consumer prices increased by 3.0% yearly from 4.0% and the Producer Price Index (PPI) came in at 0.1% from 0.9% previously. 

The data suggests that inflationary pressures in the US economy are abatingand that the Federal Reserve (Fed) should be less aggressive with tightening monetary policy after an expected interest rate hike in the upcoming meeting on July 26. According to the CME FedWatch Tool, the Federal Funds Rate (FFR) will likely maintain the 5.25%-5.50% range through 2023.

On the other hand, the Bank of Canada (BoC) raised the benchmark interest rates by 25 basis points (bps) to 5.0% in its July policy meeting on Wednesday. BoC Governor, Tiff Macklem, remarked on the policy outlook that additional interest rate hikes are necessary to slow economic demand growth and alleviate price pressures. He added that the BoC expects inflation to be around 3% next year and then return to the 2% target. 

Moving on, market players will take cues from the Canadian Consumer Price Index (CPI) due later on Tuesday. The US Empire State Manufacturing Index and Retail Sales will be released later in the week on the US docket. Investors will look for a fresh impetus and find trading opportunities around the USD/CAD pair.