Ella 
USD/CAD fell as low as 1.3640 during early European trading on Wednesday as the U.S. dollar (USD) consolidated. The pair was lower despite recent softer Canadian CPI inflation data, boosting bets for a rate cut by the Bank of Canada (BoC) in June. Investors were awaiting FOMC meeting minutes and a speech from Federal Reserve (FED) Goolsbee later in the day.
Statistics Canada reported on Tuesday that Canada’s inflation rate fell to 2.7% in April as food price growth slowed. Canada’s annual consumer price index (CPI) inflation rate fell to 2.7% in April from 2.9% in March, in line with market expectations. The overall CPI monthly inflation rate fell to 0.5% in April from the previous value of 0.6%. In addition, the Bank of Canada’s core CPI increased by 1.6% year-on-year in April, compared with an increase of 2% in March.
The slowdown in inflation data has fueled speculation that the Bank of Canada will begin cutting interest rates at its June meeting. Traders increased bets on a rate cut on June 5 to nearly 55% from 39% before the data. The pace of interest rate cuts from the Bank of Canada and the U.S. Federal Reserve is likely to put some selling pressure on the Canadian dollar (CAD) and act as a tailwind for USD/CAD.
Fed officials tend to wait for more encouraging data to gain confidence that inflation is heading toward the Fed’s 2% target. Atlanta Fed President Raphael Bostic said the Fed must approach its first rate hike cautiously to ensure inflation does not start to rebound. Meanwhile, Federal Reserve Governor Christopher Waller noted that he needs to see several more months of good inflation data before starting to lower borrowing costs.
