Ella 
USD/CAD extended losses for the second consecutive session, trading around 1.3640 during the Asian session on Wednesday. The pair’s decline was likely driven by a weaker U.S. dollar (USD) as investors digested higher-than-expected U.S. Producer Price Index data for April while awaiting the Consumer Price Index report scheduled for Wednesday.
The U.S. Bureau of Labor Statistics (BLS) reported that the producer price index (PPI) rose 0.5% monthly in April, beating market expectations of 0.3%. Producer prices have rebounded from a 0.1% contraction in March. In addition, core PPI, which excludes volatile food and energy prices, also rose 0.5% month-on-month, beating expectations of 0.2%.
Federal Reserve Chairman Jerome Powell weighed in after the release of U.S. PPI. According to Reuters, Powell expects inflation to continue to fall and said he is less confident about the prospect of deflation than in previous assessments. He also emphasized that gross domestic product (GDP) growth is expected to reach or exceed 2%, attributing this positive forecast to the strength of the labor market.
In Canada, the Royal Bank of Canada lowered its forecast for the USD/CAD pair to 1.3700 by the end of June 2024. This adjustment is attributed to the contrasting interest rate trajectories between Canada and the United States. The Bank of Canada is expected to cut interest rates four times in a row in 2024 and another 100 basis points in 2025. The hawkish comments from Fed officials suggest keeping interest rates higher for longer.
On the commodities front, rising crude oil prices could boost the Canadian dollar (CAD), weakening USD/CAD. Canada’s position as the largest oil exporter to the United States and also its largest consumer contributes to this dynamic.
West Texas Intermediate (WTI) crude oil prices have recovered from recent losses, trading around $78.30 a barrel during the Asian session on Wednesday. The rise in crude oil prices can be attributed to the latest crude supply updates released by the American Petroleum Institute (API) on Tuesday. Additionally, wildfires near Fort McMurray also stoked concerns. Fort McMurray is the central hub of Canada’s oil sands industry, producing about 3.3 million barrels per day, equivalent to two-thirds of the country’s total production.
