USD/CAD looks vulnerable above 1.3460 as USD Index corrects further, Canada’s Inflation eyed

• USD/CAD is struggling in keeping its auction above 1.3460 amid further correction in the USD Index.
• Fed Goolsbee believes that a lot of impact of rate hikes is still in the pipeline.
• Further softening of Canada’s inflation will allow the BoC to keep interest rate policy steady.

The USD/CAD pair is juggling in a narrow range above the crucial support of 1.3460 in the Asian session. The Loonie is struggling in keeping its auction above the aforementioned support as the US Dollar Index (DXY) has extended its correction further below 102.40.

S&P500 futures have increased their losses in the Asian session as anxiety among investors ahead of US debt-ceiling talks is escalating further. Market mood is getting cautious as one more time delay in a constructive decision for raising the borrowing cap for US Treasury would induce market volatility. Reuters reported that US House Speaker Kevin McCarthy told on Monday, “Congressional and White House negotiators were still far apart in talks to raise the debt ceiling to avoid a default.”

The USD Index has deepened its correction as the expectations for a pause in the rate-hiking cycle by the Federal Reserve (Fed) are skyrocketing. Chicago Federal Reserve Bank President Austan Goolsbee cited on Monday that a lot of impact of rate hikes is still in the pipeline. It is likely that the US inflation will continue easing further as higher interest rates will keep the Consumer Price Index (CPI) under pressure.

On the Canadian Dollar front, investors are awaiting the release of Canada’s inflation data. As per the preliminary estimates, Canada’s core CPI is seen softening to 3.9% from the former release of 4.3%. Headline CPI is seen declining to 3.7% vs. the prior release of 4.3%. In-line, Canada's inflation report will allow the Bank of Canada (BoC) to continue to its current monetary policy.

Meanwhile, the Bank of Canada (BoC) Financial System Survey (FSS), conducted between February 21 and March 10, showed that confidence in the resilience of the Canadian financial system was at its highest since the first FSS in 2018.