USD/CAD jumps to near 1.3180 as Canada’s inflation softens as expected

• USD/CAD has moved swiftly towards 1.3180 as Canadian inflation has decelerated as expected by investors.
• Canada's annualized headline and core inflation have decelerated to 3.4% and 3.7% respectively.
• Weak oil prices have heavily weighed on the Canadian Dollar.

The USD/CAD pair has climbed swiftly to near 1.3180 as Statistics Canada has reported a decline in the Consumer Price Index (CPI) data (May) as expected by the market participants. Monthly headline CPI has registered a pace of 0.4% while the street was estimating a pace of 0.5%. Last month, headline CPI showed a velocity of 0.7%.

Annualized headline inflation has decelerated to 3.4% as expected by the market participants. Monthly core CPI that excludes volatile oil and food prices has also slowed to 0.4% vs. expectations of 0.5%.  On an annual basis, core inflation has softened to 3.7% against the consensus of 3.9% and the former release of 4.1%.

Investors should note that Canada’s May Employment data was also weaker than expected. However, one-time weak labor market and soft inflation data are insufficient to force the Bank of Canada (BoC) to skip the policy-tightening spell.

Meanwhile, oil prices have dropped sharply as the impact of political instability in Russia is fading away. The oil price has surrendered their entire gains inspired by Moscow vs. Mercenary group clash as spot fundamentals are still weak. Fears of global recession have not faded as the battle against stubborn inflation is far from over.

It is worth noting that Canada is the leading exporter of oil to the United States and weak oil prices are impacting the Canadian Dollar.

Stellar gains added in early Europe by the S&P500 futures have eased now and the 500-stocks basket is expected to open on a marginally positive note. The risk-appetite theme has faded significantly.

The US Dollar Index (DXY) has printed a fresh day’s low at 102.45 as investors are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell for the interest rate guidance.