USD/CAD faces pressure near intraday high of 1.4200 after hot Canadian CPI report

• USD/CAD drops as the Canadian Dollar attracts some bids after the release of the Canadian inflation report for January.
• Canadian CPI accelerated in January but remained below the 2% target.
• Investors await the FOMC minutes, which will be released on Wednesday.

The USD/CAD pair attracts offers near the intraday high of 1.4200 in Tuesday’s North American session. The Loonie pair faces pressure as the Canadian Dollar (CAD) discovers buying interest after the release of the Canadian Consumer Price Index (CPI) data for January, which showed that price pressures accelerated.

On year, the CPI data rose by 1.9%, as expected, faster than 1.8% growth in December. Month-on-month inflation grew by 0.1%, in line with estimates, after deflating by 0.4% last month. An expected increase in the inflation data is unlikely to offer relief to Bank of Canada (BoC) policymakers as price pressures are still below the central bank’s target of 2%. Persistently lower inflationary pressures would force the BoC to continue reducing interest rates.

The BoC has already cut its key borrowing rates by 200 basis points (bps) to 3% since June 2024, and expectations of further reduction in the March meeting remain firm.

Meanwhile, the US Dollar (USD) trades firm in the North American session, with United States (US) markets opening after a long weekend. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, bounces back to near 107.00, at the press time, after recovering from the two-month low of 106.50, which it posted on Friday.

The Greenback gains ahead of the Federal Open Market Committee (FOMC) minutes of the January policy meeting, which will be released on Wednesday. Investors will look for cues about how long the Fed will keep interest rates in the range of 4.25%-4.50%.

On Monday, a slew of Fed officials guided that the current monetary policy stance is optimal, given resilient United States (US) economic growth, a balanced labor market, and still-elevated inflation.