Ella 
USD/CAD is firmer in early Asian trade on Wednesday, sitting above the mid-1.3500 level. USD/CAD gains were supported by a stronger U.S. dollar and weaker-than-expected Canadian consumer price index (CPI) inflation data. Investors will pay close attention to the Federal Reserve’s interest rate decision on Wednesday, which is expected to remain on hold. As of press time, USD/CAD was trading at 1.3578, up 0.09% on the day.
The Fed is likely to keep interest rates in a range of 5.25% to 5.5% at its two-day policy meeting on Wednesday and continues to focus on inflation remaining strong. The Chicago Mercantile Exchange’s FedWatch Tool shows that the market has priced in three interest rate cuts by the Federal Reserve this year, with the market believing that the probability that the Fed will start cutting interest rates in June is 63%.
In terms of data, the U.S. Census Bureau announced on Tuesday that the monthly rate of new home sales improved to 10.7% in February from -12.3% in January. Meanwhile, building permits rose to 1.9% from -0.3% previously.
On the other hand, Canadian inflation data was weaker than expected, raising expectations of an interest rate cut by the Bank of Canada (BOC) in June, which put some selling pressure on the Canadian dollar (CAD). Following the data, money markets had raised the probability that the Bank of Canada would initiate a rate cut in June to 75 per cent from 50 per cent before the inflation data.
Canada’s headline inflation rose at an annual rate of 2.8% in February on Tuesday, while core inflation eased to 2.1% in February from 2.4% in January. Inflation rose 0.3% monthly, compared with expectations for a 0.6% rise.
