US Producer Price Index Hits, USD/CAD Remains Above 1.3650

USD/CAD strengthened towards 1.3675 during the Asian session on Tuesday. Canadian economic data is light this week, and investors will pay close attention to the U.S. Producer Price Index (PPI) on Tuesday and the Consumer Price Index (CPI) on Wednesday.

Several Federal Reserve officials have said in recent weeks that current interest rates should remain higher for longer to reduce inflation. At a news conference, Fed Chairman Jerome Powell said a rate hike was “unlikely” but did not completely rule out the possibility. Powell stressed that more time is needed to gain “greater confidence” that inflation is moving toward the Fed’s 2% target.

Dallas Fed official Lorie Logan said there are upside risks to inflation, adding that it was too early to cut interest rates. The argument that U.S. interest rates remain high for an extended period of time may support USD/CAD and give USD/CAD a temporary boost.

On the other hand, falling crude oil prices continued to pressure the commodity-linked Canadian dollar (CAD) lower as Canada is a major oil exporter to the United States. However, better Canadian job market data for April may convince the Bank of Canada (BoC) to wait longer to ensure inflation is sustained. This may therefore limit the downside for the Canadian dollar.

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