Ella 
In early Asian trading on Tuesday, USD/CAD still encountered resistance at the key 1.3500 mark. A fall in the U.S. dollar (USD) and falling U.S. Treasury yields weighed on USD/CAD. Investors are awaiting U.S. February consumer price index (CPI) inflation data due later on Tuesday. As of press time, USD/CAD was trading at 1.3478, down 0.03% on the day.
U.S. labor market data in February were mixed, not enough to convince the Federal Reserve’s monetary policy expectations. In addition, Federal Reserve (FED) officials issued dovish comments last week that once again confirmed expectations for a June interest rate cut. Federal Reserve Chairman Jerome Powell said in semi-annual testimony last week that more confidence is needed before the central bank is ready to cut interest rates, but that a rate cut is not far away. Money markets are pricing in a chance of a rate cut by June at about 70%, the CME FedWatch tool shows.
The Bank of Canada kept interest rates unchanged at 5.0% at its fifth consecutive meeting last week, in line with consensus expectations. However, Bank of Canada Governor Tiff Macklem said at a news conference that it would be premature to introduce a rate cut before more progress is made in controlling core inflation. Tiff Macklem further pointed out that the central bank needs to give higher interest rates more time to complete its work. Money markets have pushed back fully priced bets on a rate cut from June to July. This in turn boosted the Canadian dollar against the US dollar.
Traders will keep a close eye on U.S. inflation data for February due on Tuesday. Headline inflation is expected to remain stable, at an expected annual rate of 3.1%, while core inflation is expected to fall to 3.7%. On Thursday, the focus will shift to U.S. retail sales, which are expected to rise 0.8% in February. These events will provide direction for the USD/CAD pair.
