USD/CAD eyes more downside to 1.3450 ahead of US inflation and BoC policy

• USD/CAD is declining towards 1.3450 as the market mood is upbeat ahead of US inflation.
• BoC Macklem is expected to keep rates steady at 4.5% as Canada’s inflation is softening consistently.
• Fed policymakers are cautioning for considering more rate hikes ahead.

The USD/CAD pair is expected to see more weakness to near 1.3450 amid a cheerful market mood. Investors seem calm before the storm of United States inflation data as the Federal Reserve’s (Fed) terminal rate is around the corner. The Loonie asset is expected to remain in action as the Bank of Canada (BoC) will announce the interest rate decision ahead.

S&P500 futures have added nominal gains in early Asia after a choppy Tuesday, portraying further improvement in investors’ risk appetite. The US Dollar Index (DXY) has dropped after failing to extend its recovery above 102.30. The USD Index is likely to revert to its immediate support of 102.00 as Fed policymakers are cautioning about considering a more restrictive policy.

Chicago Fed President Austan Goolsbee has advised a cautious approach as the combination of tight credit conditions and further restrictive monetary policy can hit sectors and regions differently than if monetary policy was acting on its own.

Also, Philadelphia Fed President Patrick Harker cited “I am keeping an eye on the data to see if more action on inflation is required.” He further added, “It can take up to 18 months for the full impact of monetary policy actions to be felt.

Going forward, the release of the US inflation data will be the key event. Analysts at Commerzbank expect “Statisticians are likely to report a drop in the inflation rate from 6.0% in February to 5.3% in March. However, the March decline is entirely due to the fact that prices are now being compared with those in March 2022, when energy prices in particular had already risen significantly due to the Ukraine war. While core inflation is expected to increase from 5.5% to 5.7%”

On the Canadian Dollar front, BoC Governor Tiff Macklem is expected to keep rates steady at 4.5% as Canada’s inflation is softening consistently.